By Though most people in the cryptocurrency sector have used the long hodl approach to investing in the sector, trading crypto can definitely be more profitable, if done right.
What You Need to Know About HODLing
The hodl (holding on for dear life) approach relies on two main ingredients to be successful: first, an upward trending (Bull) market and two, a relatively long-term future prospect for the asset. Bitcoin and many other cryptocurrencies have enjoyed both of these factors for the better part of a year.
However, as of 2018, the overall market has seen a rapid reversal to those trends. This means that those who haven’t actively traded during this overall period have actually made far less than those who have.
The reason for this is simple, while hodlers make profits on the overall upward trend of a cryptocurrency, traders make profits on those same movements and price dips as well.
For example, see the 14-month Bitcoin price chart below:
A hodler who entered the market on January 1st, 2017 has seen a net return of about 700-800% as of July, 2017. Now, a trader who entered the market on the same date had the potential to make a net return of 3300% by trading at the 6 peaks in the December to February period. If the trader had timed his sells and buys correctly, in just 6 sells at the peaks and 6 rebuys in the dips they would have made about 4x the profits of the hodler. This is what traders refer to as “taking profits” and “buying dips”.
In the next example, let’s examine a single day of Bitcoin in price charts;
In this case, the hodler who held through this 24h period saw a net return of about $600-700 USD or about 9.7%. A trader, on the other hand, who sold at all 6 peaks and bought back in at the dips in between would have made a net return of around $2500 or 34.7%.
Trading vs. HODLing
These two examples demonstrate the added value of trading vs. hodling. Though both are profitable, trading, if done properly, will deliver much better ROI, even in a single day. Additionally, if you were to trade every day, over an extended period, these profits are compounded and returns can be phenomenal in comparison to simply holding a coin. In essence, while holders are waiting for the coin to grow on a longer-term basis, traders are using the volatility to maximize returns the whole way up.
There is a saying amongst traders, “Volatility is a trader’s dream and an investor’s nightmare”. That means that while a holder has to worry about the overall uptrend and wants a market to continue upward constantly, traders are happier when the market fluctuates up and down; the more, the better. Considering the volatile nature of cryptocurrency, trading would seem to be a better use of capital in the market.
But Trading Isn’t for Everyone
That being said, the average investor in the cryptocurrency space should not attempt to trade actively, unless they are willing to endure a huge learning curve and take heavy losses.
Professional traders, like those writing and providing market analysis on CoinBeat, have spent years honing their strategies and sharpening their skills. The average investor is not able to separate themselves from their investments, and emotions in trading are like emotions on a poker table; they cause bad decisions. What you often find is investors attempting to trade, thinking it is much easier than traders get credit for.
Some traders spend years in business school, followed by years working their way up through brokerages learning the ropes. Unfortunately, in cryptocurrency the recent bull market has caused many investors to question the need of such seasoned veterans. That will change as the markets move to a more bearish outlook and simpler strategies are no longer effective. As the market moves to a downward trend as it has for the first half of 2018, holding coins will not be profitable and will actually result in loss of capital.
The Downfalls of Non-Professional Trading
Other common mistakes made by novice traders include selling too early, buying too late, or not taking a small loss when a position has gone the wrong way. Holding onto such a position can result in major losses that will only emotionally charge the investor, creating a string of further bad decisions.
For example, when a market starts to go up past the point where the novice has sold, FOMO (fear of missing out) causes them to buy back in just as the market is turning towards a downward trend. This is called getting caught in the “bull-run” and is just one common mistake made by non-professional traders.
Another major mistake is not reading the order books for resistance and support levels. Buying at the wrong place around these levels can cause frustrations and additional losses. The most common is “panic selling” when the market looks to be falling to heavily. It will likely take a novice out of potentially profitable positions. These are just some of the most basic mistakes that can cause major losses when trading.
You Can Trade with Professional Guidance
In my opinion, trading is a huge value addition to any long-term investment strategy, especially in the crypto sector. However, if you are not a professional trader, do not trade without professional help or up to date market information.
CoinBeat is a platform that connects investors with professional traders, analysts and writers that comb the sector and have access to information that matters first. It allows for investors to mimic and copy the trading strategies of these professionals and stay ahead of the informational curve.
Satoshi Smooth for example, frequently publishes through CoinBeat and CoinBeat’s daily and weekly market recaps are great ways to make informed trading decisions. Subscribing to CoinBeat can potentially give you the edge to trade actively and compound those profits, putting your capital to work far better than simply HODLing.
In short, if you are a casual investor, who believes in the future of cryptocurrency, invest and hold. If you are a more serious investor looking to maximize returns, trade, but do so only with professional help from a reliable source ie. CoinBeat. Subscribe today!
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