eToro Tips: Find Best Traders

Tips for selecting eToro GurusThere’s a massive choice of traders (“Professional Investors”) available on the eToro social trading platform which you can copy (they used to be called Gurus). Before you start looking though, please consider what your expectations and risk profile are. E.g. are you looking to double your money in a small period of time (i.e. gamble/play) or are you looking to try and make some gradual profits over time?

Once you know that, how do you go about selecting the traders to follow who match your criteria?

Here are some tips and things we look at when selecting the Professional Investors/Traders we copy:

  • Most people will still want to start with looking at the “most copied traders”. To get this view, select “People” at the top, then select any of the “most popular searches”, then “clear all” to remove the filters. You should now see all the eToro traders ranked by most “Copiers”
    … but … since eToro’s introduction of new stats in February 2015 you can actually also rank the traders as well by AUM (i.e. amount of money invested in them). This is probably a more relevant and immediate indicator of popularity since it reflects how much people trust the trader with their own money. Also if a trader loses 90% then they may still have all the copiers on board who didn’t set a stop loss. However, in terms of AUM they would see an imediate decrease since the money following them would be decreased due to the losses as well.
  • Popularity is obviously a decent “starting” point for finding traders to analyse further but by no means will just copying the “Most Copied” or “Highest AUM” traders be a recipe for long term success. There have been several past examples of traders in the ‘most copied top 10′ who lost their account balance (and hence their copiers’ allocation). So putting in some time and effort to analyse the additional statistics is likely to lead to better long term results.
  • When looking at the new monthly performance figures for lower risk traders, it’s always better if you can find at trader with consistent monthly performance figures (i.e. monthly changes not too high), instead of those with one or a few months of sudden more than usual losses.
  • When analysing a trader it is also useful to look at the ‘Copiers’ graph in their eToro profile. A steady increase without large sudden drops is the sign of a consistent “Professional Investor”. A sudden drop in ‘Copiers’ on the other hand is normally the sign of some erratic or poor trading activity.
    E.g. we prefer a graph shaped like this  Example of good 1 year eToro performence graph to these types of shapes Example of not so good 1 year eToro performence graph  Example of not so good 1 year eToro performence graph  Example of not so good 1 year eToro performence graph.
  • When analysing risk, the maximum historic drawdown % is an important indicator (daily, monthly and yearly). Please understand though that this is historic (!) and there’s no guarantee the level won’t be higher in the future. Obviously the lower the better for finding low risk traders (e.g. <10% weekly). I also believe this indicator is much better to evaluate risk than just looking at the proprietary eToro risk score.
  • Always be very sceptical about traders on eToro who have a 100% or very high winning ratio. Anyone can have a 100% winning ratio by never closing a losing trade, but this might significantly impact your performance.
    Here’s why:
    While the trader may start with a SL (stop level) of 100 pips on a trade, they may gradually increase this to 1000 to ensure they can keep this trade open. The impact of this means that your available allocation, i.e. the amount that can be used to open new trades, will be significantly reduced.
    E.g. you allocate $1000 to a trader and they risk $50 on a EURUSD buy trade at 1.3300 with TP (Target Profit) 100 pips or 1.3400 and SL (Stop Level) 100 pips or 1.3200. If the EURUSD starts dropping and they adjust their SL to 1000 pips or 1.2300, this means that instead of $50 of your $1000 allocation, they’re now risking $500 of your allocation and only the remaining $500 can be used for any other trades the trader makes.
  • Look at the number of Open Trades in the eToro trader profile. As above, open trades will significantly impact your overall performance as they reduce your available equity. Professional traders know when to take losses and use stop levels effective. We therefore prefer traders who cut their losses before they become a drain on the available equity and eventually get stopped out. I.e. traders with no open trades and a 60-80% winning ratio will perform better over time than traders with a 100% winning ratio and 10+ open trades.
  • Checking the current tied up equity of the trader (under the Portfolio tab) is also very useful. We prefer to copy traders with a limited amount (e.g. < 5%) or ideally no capital tied up in long term open trades of more than 1 month.
  • Look at how long the traders has been trading on eToro. The longer the better as over time more people will have tried to copy them. Since anyone can open an account with $50 and take some risks, it’s certainly possible that a trader can get lucky a few months in a row. Over time though it’s more difficult to make consistent returns and that’s where professional traders distinguish themselves from gamblers. We prefer to follow and copy established traders with at least 1 year history on the social trading network.
  • Though in addition to the time they spent on eToro, just make sure you check the number of trades they have done to date as well. The more the better obviously because that gives you more data. We always set our filter in the Discover People tool to only display traders with 50 or more trades.
  • From looking at the historical trades, try to understand the trader’s strategy. We like to avoid traders who’s system or strategy involves added to losing positions in order to recover when the market makes a small correction (i.e. Martingale type trading strategies). This is a similar strategy to doubling up on one colour (i.e. red or black) on a roulette table in the casino in the hope that that colour eventually comes up (which is a system which eventually fails when you run out of cash or reach the table limit). This trading strategy works well in low volatile market conditions, but can cause serious problems when the Forex market moves 500 pips in one direction without retracing. In most cases where traders have busted their accounts this has been the cause. Because of the limited historical data provided by eToro this is not always easy or possible to determine. Try and look at the monthly performance table and see if you can still find the trade history for the time period where they made a significant monthly. Did they open multiple consecutive positions in the same position at that time or not?
  • Try to anticipate whether a trader is likely to lose their full balance (and hence your allocation). Yes, we know, this is easier said than done, though this is probably the key difference between making a profit on eToro and losing money. E.g. if you had invested $1000 in each of the top 10 most popular eToro Gurus on June 1st 2012 you’d have lost $763 by May 31st 2013 (12 months later). However if you had avoided following michaelfx, who lost all of your allocation, you’d actually be in profit (view the full 1 year eToro performance comparisons here). And there have been a few other examples of “Professional Investors” in the top 10 at their peak in terms of copiers who managed to lose their account balance (e.g. Robepu and thesizzle). Looking at the trader’s trading strategy (as described in the previous point) and evaluating their risk & money management strategy (i.e. looking at risk per trade, historical drawdown, average exposure, …) should give you a good indication on the likeliness of their account being blown, though as always there are no guarantees since past behaviour and performance are not always indicative of future results.
  • Most professional (day) traders focus on 1 trading instrument (e.g. currencies or stocks or commodities). Hence we’re always a little sceptic about eToro “Professional Investors” who seem to have invested in almost every instrument and currency pair (in the portfolio view).
  • Look whether the “Professional Investors” is copying trades from other traders. If they are, consider whether you want to “copy” another “copier” or whether you want to keep control yourself over the traders you copy.
  • Test the “Professional Investors” you consider copying using your virtual money eToro demo account. We cannot stress this more, but the best way to see and understand how a “Professional Investor” would perform with $100 or $1000 of your real money, is to allocate this with your virtual money and monitor their performance. Not only does this demonstrate their performance, but you’ll also be able to see how much risk they take per trade. I.e. how much of your allocation do they risk per trade. This can be monitored by looking at the “Amount” figure in the Open Trades screen. If this amount is $500 of a $1000 allocation, this means they risk 50% of their equity.
  • Be sceptical about any suggestions made by the eToro marketing e-mails or your eToro account manager and analyse them yourself first. E.g. of 10 suggestions made near the beginning of June 2012, after 3 weeks hibikitakahashi had $78 left of their $1000 allocation and Cemara1 was left with $66.4 of their $1000 allocation. 2 of the traders who were suggested as being low risk also already had over 50% of their allocation tied up in (losing) open trades (hardly low risk). Arguably some did perform well, though do your own research and try them in your demo account first if you’re not sure (like we do).
  • Read through the comments on the trader’s live trading feed. While not all traders actively participate on the feed, some will comment on the trades they make and the market view they have. This may give you an indicator of their trading strategy. Comments from other followers and copiers can sometimes be useful too. However, please note that the feed comments are moderated by eToro and negative comments are often removed (mainly because of language abuse).

Last updated: September 30, 2016

* All trading involves risk. Only risk capital you’re prepared to lose.
* Past performance does not guarantee future results. Trading history presented is less than 5 years and may not suffice as basis for investment decision
*This post is not investment advice.

 

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Comments

  1. kickytink says:

    After reading this I began following the advice written here.
    I thought I understood they way it works but I stumbled onto a guru, and checked his 6 monthly and yearly stats and found something that does not make sense to me.
    Correct me if I’m wrong, but for example, I was looking at a guru Sikhamoni G J.
    When I look at his stats over a 6 month period, I see that after January 2013, his realized equity is below his total equity. But, if I look at his stats over a 1 year period, I see that his realized equity is above his total equity all the way from around June 2012. How is this possible?
    If this is not faulty, could someone please explain to me why this is so?

    • Social Trading Guru says:

      Hi. As mentioned in our eToro review, we fully agree that quite a bit of the stats provided by eToro are confusing and not transparent.

      I just looked into your question though and think I may know what’s happening here. Because the graph represents values as percentages, the key here is the “period” you select when looking at the graph. When you select 1 year, whatever the value of total equity Sikhamoni had 1 year ago become 0%, and if you select 6 months, the value of equity 6 months ago become 0%. So if say total equity of a Guru was $500 1 year ago, $250 6 months ago and $750 now, the 1 year graph will show a 50% increase ($500 to $750), while the 6 month graph will show a much steeper 200% increase ($250 to $750). So if the Guru realised similar profits every month of the year, it’s possible the realized equity line may be above the total one on the 1 year graph and below on the 6 month graph. In the case if Sikhamoni on the 1 year graph you’ll notice that after 6 months (October 8th) their total equity graph was actually in negative (almost -14%). On the 6 month graph, this October 8th point becomes the new 0% reference, so total equity will increase sharper to today’s value then on the 1 year graph. I hope this make sense, feel free to e-mail me if it doesn’t and I’ll try and explain in a different way.

      Btw, there was a useful article on the eToro website about how to interpret the realized and total equity graphs on OpenBook (click here).

  2. Hi Social Trading Guru, I started trading copying gurus and found your post and all your recommendations extremely helpful. Being a scientist I was thinking on yet another way to discriminate professional traders from gamblers and wanted to know your opinion on my logic. Here it goes: “trading gurus tend to invest in similar markets (e.g. currency pairs) during a given period of time”.

    The rationale behind is that professional trading gurus understand the different market contingencies and foreseen the trading opportunities in them. For example, trading gurus that were aware of the potential shutdown of the US government would have bet against the dollar last week, or at least would have not taken positions in favor of it. What do you think? Is there a crowd wisdom there that could be leverage when choosing social trading gurus?

    Thanks and keep the good work!

    • Social Trading Guru says:

      Hi, thanks for the nice comments and feedback. I believe you make a very valid and useful point.

      In my opinion “professional” traders do indeed understand the relationships between news events and the different markets. While they cannot predict the future, they are able to quickly analyse any new information and the impact it has on the markets they trade. In your example they may indeed have opened some new positions against the dollar or closed their dollar longs.

      To identify this type of “professional” trading behaviour in eToro is a little bit more difficult since there’s no quantifiable indicator for this. I believe the best way is to look at the historical trades in the guru’s profile directly after a major market moving news event. I.e. if the guru opened any new positions or closed existing ones in the aftermath of the news, they clearly acted on the new information. Because eToro’s trade history only goes back 100 trades it’s obviously best to check this soon after the event.

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