Cryptocurrency investors generally tend to either Buy and hold (HODL) cryptocurrency. Or, trade cryptocurrency and try to grow their portfolio. Of those two, the general wisdom is that HODL is a better strategy for new traders. There is some sense in that, but the reality is that both of these strategies can be a little dangerous if executed without due diligence.
It’s a purposeful misspelling of “hold” that implies holding on to your portfolio through ups and downs. It is solid advice, but it is also much harder to pull off correctly since it takes a level of patience most people don’t have.
HODLing is simple!
You buy the coins, and put them in your wallet, and then DO NOTHING (aside from checking on price levels now and then). In crypto patience often pays off, thus after some sleepless nights, weeks, months, years… one day you check your portfolio and feel richer. You do very little (thus low risk), and earn a very big reward. As a bonus, you won’t pay taxes until you cash out and your tax reporting is going to be very simple.
Cryptocurrency is extremely volatile.
In crypto trading 2% gains are something that you can see 5 minutes after hitting the buy button (they are almost as common as 2% losses; which can also happen moments after hitting the buy button). There are lots of opportunities to see big gains and losses in crypto. If you can learn to take advantage of the gains, you will outpace a HODLer very quickly under most market conditions.
On a good day, a trader takes profit high or trades out of a coin and avoids going down. On a bad day, a trader takes profits too early or doesn’t re-enter a position before a coin goes back up. On a very bad day, a trader buys high, sells low or buys high and then gets liquidated on margin because they didn’t use stops. It is common for inexperienced traders to experience portfolio erosion due to trading out of coins that aren’t doing well and into coins that are, only to see both trends reverse.
Still, one who trades actively likely won’t be going down in a major crash, and that in itself fairly valuable. Lastly, a trader is conditioned to trade, and thus they may miss out on easy money in a very bullish market due to being conditioned not to HODL. That said, there are different styles of trading, and not every trader has to be a day trader!
One of the worst parts of trading cryptocurrency is taxes. You have to tally up profits and losses on every trade (an absolute nightmare in terms of reporting). Not only is reporting a headache, the taxes themselves also eat into profits.
Even an inexperienced trader has the potential to outperform a HODLer, but to do this they have to put aside emotions and have patience. Here, a trader will act as if they are a HODLer, averaging into positions and HOLDing. However, they will then average out of those positions once they have profits or once the price starts heading on a downward trajectory.
Stop losses, profit-taking, and averaging out of positions can help to avoid many of the risks of HODLing, but of course, these tactics present their own risks as well. A major risk of being willing to cut losses and take profits is taking small but consistent gains and missing parts of runs (thereby underperforming a HODLer).
If the market is bullish, try to stay away from trading too much unless you really know your stuff (if all it takes to make a profit is buy and HODL, then revert to doing that and keep it simple), in a stagnant or bear market, or when it comes time to take profits, trading can be your friend. Most of all though, find a trading style that works for you, and make sure to employ proper risk management tactics!
ETH, in the past 24 hours alone, pumped from a daily low of $2,250 to its current level of almost $2,400, which is its highest price line since June 17th.
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