My Experience with Crypto Copy Trading

And how I have learned from painful lessons so that you don’t have to

Gaurav Agrawal
Mar 23 · 9 min read

2020 has been a crazy year for good and bad reasons, but for sure it has been good for crypto. It was like a coil that had been charging for the past two years or so had finally blown up, taking everything crypto-related with it on its way.

W have seen BTC making new ATH every other day as if it was 2017 all over again but on steroids, some of the most traditionalist and respected hedge funds on Wall St., and also some big public personalities (Elon Musk anyone?), suddenly becoming the biggest crypto supporters, DeFi going to the moon, and NFTs selling for ridiculous amounts of money.

Among all of this, something else has been gradually finding its way, possibly one of the things that I have personally found most interesting, and that is a proliferation of different crypto-copy-trading platforms. The idea of finally being able to generate some real passive income without taking on huge risks that I didn’t quite understand (i.e. DeFi Yield farming), or doing something that was only working for a short amount of time (i.e. mining) was of great appeal to me, so I decided to give it a go.

TL;DR

Picking the Right Platform

Of course, not all of these platforms were interesting (and some straight-up scams), but after long researches, that I won’t go too much in-depth as they are beyond the scope of this article, I have finally found my top three finalists, namely: Cryptohopper, 3Commas, and Zignaly.

3Commas was excluded almost immediately as it only offered (very expensive) accounts based on monthly subscription fees that required high initial investment and had fixed costs that needed to be paid upfront even in the event that the strategy followed didn’t make me any money in the end.

The second option was Coevesting, which was already much better as it was offering a proportional success fee between the copier (myself) and the trader, and this was much closer to what I was actually looking for, but I didn’t like the fact that the entire platform was based on their own exchange, that was also custodial.

So finally I have decided to go with Zignaly, in fact, thanks to their newly launched profit-sharing model (launched in November 2020), they were offering something similar to Cryptohopper, but even better as there were no minimum amount to invest, which allowed me to dip my toe before actually investing my full size. Also very important to me, was the fact that they were non-custodial, as the entire platform is based (under the hood) on Binance, which is the actual custodial of all the assets traded on Zignaly, and this has given me much more confidence in trying it out.

Now that the platform had been chosen, I just had to decide which trader to copy. Easy task, right? Well, it wasn’t…

Picking the Right Trader

A Bad Start

As the year was turning I had finally got myself a funded USDT account on Zignaly and I was ready to start copying some traders and start making some money. So I have accessed the marketplace for profit sharing and…had no idea what to do next. There were about 50 different traders offering profit sharing on the platform back then, and I was quite overwhelmed by the offer (or really by the idea of having to do my homework to figure out who to follow).

One thing that I didn’t know at the time, was that although this new concept (profit sharing) offers incredible opportunities for passive income if you manage to follow the right trader, in the beginning, you will still have to figure out who that right trader is, as this can be way more difficult than what you think because all the same tricks that make you lose money in the market are at play here too, and by that I mean all those good old ways that we use to play ourselves, FOMO, self-deception, lack of patience, that little voice in your head that says “look how much this is pumping! Is certainly going to the moon in no time, jump on and you are going to be rich!!”.

And it was precisely by following that little voice that I decided to follow my first trader, the hottest one back then, Warchartlouis0.

Warchartlouis0 was one of the traders whose account was growing faster and that was attracting the most hype, so I have decided to jump on that train, too. A the beginning of January I recall his provider being at about +50% in profits after just a few weeks of trading, and I especially liked is 45° degrees equity curve, which looked safe to me (it definitely wasn’t a good sign, but this something that I have only learned later on…).

A good example of the infamous 45° equity curve — common with mean reversion strategies

After just one week of copying this trader my account was already up +50% (while his provider was now up over 100%) and I was feeling great, being super confident that Warchartlouis0 would have made me rich in no time.
I was already thinking about where to buy my private island when something weird happened.

This trader was using a trading strategy that (I have learned later) was called mean reversion, which can be recognized by the nice uptrending 45° equity curve mentioned above, and basically consists in averaging down on losing positions, often on leverage and without stop loss, in order to lower the average entry price, and waiting for the position to come back to break even, or eventually profit, before closing it. Now the problem with this (which I later on understood was basically the recipe for disaster), was that while this was generating steady returns and apparent low volatility in the account, is a strategy that works until it doesn’t, and when it doesn’t, what happens is precisely what did happen to Warchartlouis0.

The guy held onto this losing position that kept going down, all while also adding to it, in the hope that it was finally going to turn. This doesn’t just mean that he was over-leveraged in this losing position, but also that he didn’t have capital available to open other potentially profitable positions, he had literally run out of bullets.

What I woke up to on that day of February

The situation kept going for several weeks until on that morning of February everything came to an end and the margin call arrived for Warchartlouis0; the market had taken down his provider, and my account with it.

Lesson Learned

The Warchartlouis0 blow up was not an easy one to swallow, and this wasn’t much for the loss in itself (as at least I had figured out it was a good idea to start testing with a small amount, in the beginning, so luckily my losses weren’t a complete disaster), but more because of how it made me feel.
I had made a bad choice and these were the results; if I wanted to obtain different results next time, I would have had to take my money allocation seriously, by putting time and effort into some proper research.

So I have started my trader’s research from scratch, checking every single trader’s channel on the Zignaly Discord server, or the trader’s private channel if and where these were available, looking for more info about their style, and possibly details about why they were doing what they were doing (on a conceptual level), and why they were getting the results they were getting.

It was so that, while progressing in this research, I have found myself on the CryptoLivermore channel of the Zignaly Discord. This guy didn’t have any website, but he had written some very detailed Medium guides specifically about the trading systems that he was offering on Zignaly, was mentioned among the traders followed by Tole himself (Zignaly CEO) in his monthly passive income articles and, last but not least, had a popular Twitter account followed by a series of crypto legends from Sam Bankman-Fried (FTX CEO) to Notsofast and Nik Patel, so all these elements sort of made me feel more comfortable.

Once I have started digging deeper into his Medium guides, I have found out that this guy had never had a losing year in crypto since 2016 and that he made +80% in 2018 alone, during a bear market, so maybe he knew a thing or two about trading, but most importantly he was putting the focus on managing the risk by cutting losers and letting winners run and having a long term horizon in trading, both things that were resonating very well with me after my previous experience. It was in fact while reading one of the CryptoLivermore guides that I suddenly had an aha moment, and realized where Warchartlouis0 had f*#%£& up. He didn’t manage his risk; he didn’t cut his losers short and let his winners run, he was instead doing quite the opposite, by adding to losers and selling winners as soon as they were showing a profit.

On top of all this, I did also remember CryptoLivermore from the Zignaly marketplace; in fact, while I was stuck in a losing position with Warchartlouis0, one of the CryptoLivermore accounts was literally skyrocketing (following a very strong move in BTC) and my FOMO with it, so after I have made sure that I had this time considered all the options and done my homework properly, I have decided to split my allocation between his two providers (the BTC Futures and the Altcoins Spot), as suggested by the trader himself, as the two strategies are built to work in combination.

One of the CryptoLivermore accounts with the characteristic “step-shaped” equity curve, a sign of good risk management.

That happened shortly after the Warchartlouis0 blow up; fast forward just a bit over one month and my Altcoins Spot account is now up well over +150%, while the BTC Futures account has been pretty much flat for the last couple of months, as no particularly strong movements have incurred in BTC (at the time of writing) after its run to $60,000. However, also the BTC account management has given me more confidence so far, as some positions were opened and managed in a great way (although they haven’t turned into winners, not all the trades do of course), and this has made me feel comfortable enough to decide to finally allocate my full position size, with a medium to long term horizon in mind and reinvesting the profits, in order to have that compounding effect working for me too.

Wrapping Up…

Finding a proper source of passive income has never been an easy task, as anyone that has ever bother trying will know all too well, but I believe that copy trading, and specifically profit-sharing models like the one currently offered on Zignaly, will prove really revolutionary and will certainly take a large chunk of the crypto markets volume in due time.

However, as mentioned above, also in this case finding the right solution for you might not be an easy task, and will require some due diligence on your side, and that’s something that we always find in crypto and that in time I have come to appreciate, as the great share of freedom that we enjoy in this space also means that we need to be responsible for ourselves.

Of course, that reported here is just my experience and I am not saying that what turned out well for me will necessarily turn out well for you too, but I hope that my story, and especially my mistakes, will help you make the best choice for yourself.

Full disclosure: I have added affiliate links in the article, more passive income, Ah! Ha!

Coinmonks

Coinmonks is a non-profit Crypto educational publication.

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

Gaurav Agrawal

Written by

Editor — Coinmonks publication (medium.com/coinmonks) and working on (https://coincodecap.com)

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com