This article will examine the advantages and disadvantages of three different copy trading strategies: going long, short, or hedging. This will help you make a well-informed decision on the best strategy for your portfolio.
Copy trading can be a great way for people to learn from experienced traders and make profits in the financial markets. Professional traders often use three common strategies to set up their bots: long bots, short bots, and hedging. Read our previous article to learn more here.
However, choosing the right bot to invest in can be a complicated decision. That's why we wrote this follow-up article.
Long bots are designed to profit from upward price movements in the market.
Tend to be more reliable in a bull market.
Long bots are ideal for traders who want to benefit from the long-term appreciation of an asset. They can generate significant profits when the market is trending upwards.
Long bots limit potential losses to the amount invested. If the price of the cryptocurrency rises significantly, potential gains can be substantial. Therefore, they can be less risky than short bots, where theoretical losses are infinite as the price could increase unlimitedly.
Long bots are vulnerable to market volatility and sudden price drops, which can lead to significant losses. They require continuous monitoring to ensure that they are performing optimally and that the market is uptrend.
Long bots may require a longer investment horizon to realize gains.
Long bots are not suitable for all market conditions, and may not perform well in sideways or bearish markets.
Short bots are designed to profit from downward price movements in the market.
Tend to be more reliable in a bear market and profitable in a downtrend economy scenario.
Short bots are ideal for traders who want to benefit from short-term market movements. They can generate significant profits when the market is trending downwards.
Short bots can help traders to hedge against losses of long positions in their portfolio.
Can be riskier than long bots, as there is no limit to potential losses.
Short bots are vulnerable to sudden price spikes, which can result in significant losses. Additionally, short positions can be more volatile, requiring more active management. Therefore, short bots require continuous monitoring to ensure optimal performance.
Short bots are not suitable for all market conditions, and may not perform well in sideways or bullish markets.
Shorting typically involves the use of contracts and futures markets, which exposes one to the possibility of being liquidated in the event of an adverse market movement.
The technique of hedging is employed to mitigate the risk associated with certain positions in a portfolio by taking offsetting positions. This involves taking long and short positions in assets that are not strongly correlated between one another. Here are some advantages and disadvantages of hedging:
Hedging can help traders to reduce their overall risk exposure by offsetting potential losses with gains from the hedging position.
Hedging allows for more flexible risk management. It can help traders to protect their profits against market volatility and unexpected events.
Hedging can help traders to manage their portfolio more effectively.
Hedging is suitable in all markets (bullish, bearish, and sideways).
Hedging can reduce the potential profits of the portfolio if the market moves in one single direction.
Hedging can be complex and requires a good understanding of the market dynamics, which can lead to errors and losses.
Now that you have an understanding of long, short, and hedging strategies, you can consider which type of bot would be the best for your trading goals. Every bot has its own strengths, which may be influenced by external factors. However, since Mizar's aim is to provide risk management tools to enhance investors' trading, we recommend prioritizing trading safety.
On the Mizar marketplace, you can find both long and short bots, and some of them must run in tandem. For instance, the StickerTradingClub team created the "ElSalvador 5 min Short" and "ElSalvador 5 min Long" bots to hedge the market.
By investing in both bots at the same time, you can go both long and short based on trading signals and bots settings. These bots are designed to detect trend reversals in short timeframes. To achieve this, they use small take-profit targets and aggressive safety orders during the initial movements.
This strategy allows you to trade regardless of market conditions - bullish, bearish, or sideways. You can use dollar-cost averaging (DCA) on open positions when prices go against you on open positions.
When you copy-tade in long and short bots simultaneously, make sure to enable “Hedge Mode” on your exchange, or trade on two different sub-accounts. This will prevent the subscription from interfering by opening positions on the same contract.
Please note that the example above is for illustrative purposes only and does not provide financial advice. Understand crypto trading and its risks before investing in a bot. Conduct your own research to make informed decisions. Invest only what you can afford to lose, and use paper trading to practice and learn how to trade with bots.
The next article will discuss the mechanics of long and short Dollar Cost Averaging bots. It will explain how and why these bots can help manage trading risks. Finally, practical examples will be provided.
Using a DCA Trading bot involves dividing an initial investment sum into smaller amounts. These amounts are then invested in regular intervals rather than lump sum investing the entire sum at once. Investing over time can reduce the risk of investing at an inopportune time. This is especially true when the market is volatile and unpredictable.
Crypto copy trading is a great option for those who lack the time or knowledge to do their own analysis. It provides access to the knowledge and expertise of top traders. It's also called mirror trading because you're automatically copying or mirroring each move of a professional trader in real time.
The best copy trading platforms offer this service free of charge. There is no fixed subscription fee. Payment is only necessary when profits are made.
You can copy trade on Binance, KuCoin, OKX, Coinbase, Bybit, Huobi, MEXC, Crypto.com, WOO X, and Bitget. Learn more here.