Strategies

1. Diversification

When copy trading, never just track one wallet at a time. It’s best to copy multiple wallets for a better statistical average and be subject to different trading styles.

1. Liquidity

Make sure to copy wallets that trade tokens with high enough liquidity. This ensures you are able to exit the position and don’t have too much slippage risk when entering the trade. Copying wallets that trade tokens with low liquidity can end up in large ROI discrepancies between you and the copied wallet.

1. Position Size

Make sure your position size is adequate enough when copying a wallet as sometimes you have lots of open positions and you need to be able to continue buying. It’s also important to look at the amount of fees you spend on each of the trades, as when you want to be quick the fee is higher but this adds up after trading many tokens.

1. ROI vs PNL

It's crucial to distinguish between Return on Investment (ROI) and Profit and Loss (PnL). ROI measures percentage returns relative to initial investment, while PnL represents absolute dollar gains or losses.

A wallet might show impressive PnL figures because of large position sizes, but have mediocre ROI. Conversely, a wallet with small positions might deliver excellent ROI percentages with modest PnL.

Focus on ROI when evaluating a wallet's trading efficiency, but consider PnL when assessing potential impact on your portfolio. Remember that a wallet's historical ROI isn't guaranteed to continue, and smaller wallets often achieve higher ROI percentages that prove difficult to maintain as portfolio size increases.

1. Be Wary of Unrealistic Returns

When evaluating wallets to copy, be skeptical of returns that appear exceptionally high. These performances might result from lucky timing on a few trades rather than consistent skill.

Some traders artificially inflate numbers through coordinated buying or self-trading between wallets to attract followers. Before copying, examine their complete trading history across different market conditions and analyze their win/loss ratio.

Consider the tokens they've traded for potential manipulation signs. Remember that consistent, modest returns (5-10% monthly) maintained over time typically outperform flashy but unsustainable gains in the long run.

1. Wallets Already Copied

Consider how many other traders are already copying the same wallet. Popular wallets with many followers can experience diminishing returns due to the crowding effect. As more people copy the same trades, entry and exit prices worsen for everyone, reducing potential profits.

Additionally, widely-copied wallets may face issues when trading lower-liquidity tokens, as the combined buying power of all copiers can significantly move prices and increase slippage. Conversely, discovering skilled but less-followed wallets can provide an edge. These "hidden gems" may offer better execution with less competition, though they typically require more thorough due diligence. Strike a balance between validated performance (which attracts followers) and avoiding over-copied wallets where returns have already been diluted.