What should a newcomer select: crypto trading or hodling? The difference, strong and weak points of two principal ways to get profits from the crypto market
Trading or investing: which crypto path to select?
The financial experts worldwide expect cryptocurrencies to change the traditional economy. Virtual assets come up with so much debate, and the key disputable question concerns whether it is better to choose trading or hodling. Such a dilemma is worth the Shakespearian ‘Hamlet’. Which path to select for not to regret the waste of time and money?
What is trading: the main features of a crypto trader
To understand the differences of trading vs holding, that is important to get a clear understanding of both terms. A trader intends to get profits from rates volatility. The more volatile an asset is, the better. Sometimes traders are called short-term investors, as they purchase cryptocurrencies for a short period (for instance, several hours or days).
Among the main features of a crypto trader, the following ones are distinguished:
1. Traders mostly deal with top cryptocurrencies that are more understandable from the viewpoint of further price movement.
2. Traders are dependent on strategies developed for certain conditions. The experts say the trading without any strategy leads to heavy losses.
3. A crypto trader needs to follow the news connected with the chosen crypto asset. Some news impact on prices significantly.
Crypto traders are divided into several groups: swing traders (hold positions from days to weeks), day traders (make deals within a day), scalp traders (open positions for seconds or minutes).
What is hodling: everything you need to know
Hodlers are also known as long-term investors. Furthermore, some crypto experts see no difference between investing proper and hodling – according to their opinion, traders are not investors.
The term ‘hodl’ is sometimes regarded as an abbreviation from ‘Hold On for Dear Life’, and this principle reflects investors’ mood. While comparing holding vs trading crypto, long-term investors are expected to get profits anyway. The period of investing is not limited. Some hodlers may keep their assets for years or even decades.
The hodling approach is related to multiple assets like stocks, gold, etc. At first sight, this approach is straightforward, but to buy and hold principle is not enough to be always in the black.
Key differences between hodling and trading
The following differences are principal while comparing hodling and trading crypto approaches:
1. Traders rely on technical analysis to predict the upcoming price changes, while long-term investors believe in fundamental analysis instruments. You need to analyze a certain asset profoundly before hodling crypto.
2. A trader selects just some assets to analyze their price moving appropriately. Traders notice some signals that point on price changes for every virtual currency. As for long-term investors, they prefer to diversify their portfolio, including different categories of cryptocurrencies there (top assets, promising virtual currencies, innovative projects, etc.).
3. Trading takes all your free time and is considered a full-time occupation, while hodling may be easily linked with the main job.
If a newcomer compares swing trading vs holding, there appears a question: which approach is better?
What is more profitable: trading or hodling
Such a question is rather controversial, as two different approaches are connected with different goals. There are some periods when trading is more profitable and vice versa.
As for 2020, crypto traders are expected to get 14% of profits, taking into account the ups and downs of the market, while the Bitcoin price has reached $12 249 in August (169.9% growth within 8 months). Some other virtual assets have shown larger growth: ETH (from $130 to $469), Chainlink (from $1.79 to $19.66). Hence, long-term investors are expected to be always in the black, as they don’t panic and react to the market volatility.
The crypto market always undergoes declines that lead to heavy losses, but from the viewpoint of long-term perspectives, the market constantly moves forward. The following decline periods are the most prominent:
1. July 2011 – December 2011. The Bitcoin price tumbled from $31 to $2 (1550%);
2. April 2013. The BTC price decreased from $230 to $68 within a week (335%);
3. December 2013 – February 2014. The decline from $1 237 to $111 per one Bitcoin happened (1100%);
4. December 2017 – December 2018. The BTC price lost 571% of its value – from $20 000 to $3 500.
Useful tips for traders and investors
No matter which path is selected, day trading vs holding cryptocurrencies is a continuous discussion that hasn’t the only right side. Meanwhile, there are some useful tips for both traders and hodlers to get more profits.
Top-3 tips for crypto traders
• Keep always developing!
Traders demand professionalism to be successful; hence, they have to understand technical analysis instruments profoundly. Do experiments and always be in search of something new and innovative.
Emotional trading is a common mistake for most new entries. Furthermore, comparing of holding Bitcoin vs trading shows that emotions lead to losses anyway.
• Don’t be afraid of changes!
There are numerous strategies suggested for crypto traders, but the crypto market is the best place for experiments. Invent your own strategies or test some new ones.
Top-3 tips for crypto hodlers
• Follow the main trends!
The crypto market is all about volatility; therefore, investors should follow the main trends only, neglecting the temporal ups and downs of the market. Hodlers may use special instruments like Heiken Ashi.
• Invest your free money!
Holding crypto is connected with risks; therefore, a person is expected to invest funds he or she is ready to lose. No loans!
• Use crypto investing simulators
There are crypto hodling simulators to understand better how to control your investments.
Trading and hodling are two dominating ways to get profits from the crypto market. These approaches have much in common, and investors may be in the black in both cases. Professionalism, profound analysis, and impassion are required to achieve success.