Copy trading has revolutionised how retail traders approach investing. This practice now allows both beginners and experienced traders to copy trades from better traders.
However, it is important to monitor your performance when copy trading to increase profit and decrease risk. In this post we will cover the key performance metrics every copy trader should pay attention to, including actionable advice for you to improve your performance, with insights into Combiz Services Pvt Ltd, the best copy trading platform in India.
4 Key Metrics Every Copy Trader Must Track
1. Return on Investment (ROI)
- What It Is: ROI is your total profit divided by your initial investment.
- Why It Matters: It will help you understand your overall profitability.
- Example: If you made a profit of 1,000 on a ₹ 10,000 investment, then your ROI = 10%.
- Tip: It will be helpful for everyone to measure ROI on a monthly basis and annually so that you are aware of relative performance.
- Keywords Insight: ROI is one of the most important metrics to think about when trying to pick the trader to copy. This is an indicator of performance.
2. Maximum Drawdown
- What It Is: The maximum peak-to-trough loss that any trader has experienced.
- Why it's important: Drawdown indicates risk levels and potential risk. If you're considering a trader with a drawdown higher than 20%, think again.
- Red Flag: A trader with a 50% return on investment (ROI) with a drawdown of 35% seems to be able to generate profits but could be taking undue risk.
- Tip: Use our Copy Trading Risk Management Guide to help you determine whether a trader has an unsafe drawdown.
3. Win Rate vs. Consistency
- Win Rate: Percentage of profitable trades
- Consistency: Frequency and reliability of gains; for example, a trader can have 30% gains, but if most months resulted in 1% to 1.5% growth, consistency with gains is more attractive than sporadic gains of 25% or 30%.
- Golden Rule: A trader with a 60% win rate with consistent returns is typically lower risk than a trader with a 90% win rate and performance all over the place.
4. Sharpe Ratio
- Definition: This indicates risk-adjusted returns. A higher number signals a trader is doing better based on risk.
- Formula: (Trader's Return - Risk-Free Rate) / Standard Deviation of Returns.
- Ideal Range: Above ≥1.5 Represents a strong performance and stability.
- Note: You should also be aware of fees, including high-water mark fees, as they will impact your net return.
How to Professionally Choose Copy Traders
1. Monitor your portfolio each week.
- Check ROI, drawdowns, and current positions.
- Don't emergency sell (panic sell) on minor drawdowns.
2. Manage your Risk Settings
- Put stop-losses in place for each trader to limit your losses to 5–10%.
- Use multiples with limited risk. Start at 1x and scale up accordingly.
3. Swap Underperforming Traders
- Once traders have engaged in poor performance or continued drawdowns for three months, swap them out.
- Use Combiz Services’ Leaderboard to help find new traders to copy.
4. Follow the Market News
- Tools like the Finlogix Calendar or AcyPartner widgets will notify you of certain market-moving events.
- Example: A Fed rate increase will move forex-based copy trades.
Tip: Trades based on liquidity sweeps and other types of news will need careful monitoring.
Check out the pricing details for copy trading
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How the Leaderboard Algorithm Ranks Traders: 7 Key Metrics
- Win Rate: This is the percentage of profitable trades; you want this to be >60%.
- Profit to Loss Ratio: This is the measure of how efficiently risk is being maintained; make sure ratios are >1.5.
- Total Return: This represents total profitability during a certain time sequence.
- Maximum Drawdown: This is a penalty for traders with drawdowns exceeding 20%.
- Sharpe Ratio: This measure of return indicates risk-adjusted returns; a measure >1.5 would be optimal.
- Calmar Ratio: This indicates risk-adjusted returns as a function of drawdown; it indicates a safer trader in general.
- Consistency and Volume of Trades: These indicate a solid, consistent trader.
Conclusion
Tracking your copy trading performance through a reasonable scope is extremely valuable for ongoing success. If the focus is on ROI, maximum drawdown, win rate, and Sharpe ratio while implementing prudent risk-reward aspects, money can be made while mitigating losses. Outlets like Combiz Services Pvt Ltd can help make this process a little easier by developing a leaderboard, risk metrics, and an effective way to track copy trader's portfolios.
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