“HODL” is a common term that is thrown around in the cryptocurrency community. If you have never heard this term used before, it originated as a misspelling of the word “HOLD,” and is a strategy many individuals who invest in cryptos take to managing their portfolios.
For some, their trading strategy may go beyond “HODL-ing” their coins, but if this is the principle you are basing your trades on: there is a better way.
Stop thinking about cryptocurrencies as the same as traditional markets you may or may not have traded in before. There is a huge difference between cryptocurrencies and other forms of investments. It is much more volatile than most markets. It is unpredictable. And it is relatively new.
While these may sound like negatives, with the right trading strategies, you can transform the volatility and unpredictability into profits in your pocket.
First, let’s talk about why simply holding the coins does not work. If you step into the world of many cryptocurrencies across the Internet, you will often see people encouraging others to hold their coins and “ride the wave,” whether it is going up or down.
What is the big problem with this approach? You are risking 100 percent of your investment.
Things happen. The markets could crash. The coin could lose its value. People may lose trust in their investments and sell. Any number of factors could cause the coins you are investing in to fall to an irreparable value at any given time.
In order to be successful in your trading, you must acknowledge the facts of the market. Just because the market is unlike a traditional market, with unpredictable volatility and an uncertain future, does not mean you should avoid trading in the market. It simply means you must acknowledge and validate these facts and create a plan that is sustainable with the behavior of the market.
So what’s the plan?
Every time you buy, go in knowing where you are going to sell. Set a stop-loss. Limit your losses to what you are willing to risk. Protect your investment.
Let’s say you want to invest $1000 in Litecoin, Ethereum, or Bitcoin.
With the “HODL-ing” or holding strategy, you would hold on to the coin, regardless of if it drops by 5 pecent, 10 percent, or even 50 or 75 percent.
This seems drastic, but it is the approach many individuals have taken to their cryptocurrency investments. By the time it has dropped by 50 percent or more, most individuals who have held onto their coin are in a state of panic and worry.
At this point, two things typically happen: some choose to continue hanging on to the coin, in hopes of its return to the original purchase value or higher, or others sell their coin for a huge loss, just to get out of the investment with any salvageable value.
This is not a good situation to be in. And it continues to happen every day.
Let’s take a look at the alternative to “HODL-ing.”
You invest $1000 at a price of $1 per coin. You are willing to risk 5 percent of the investment, which is $50 of your $1000. You are planning on selling for a profit when, and if, the investment increases by 20 percent or $0.20/coin in this case.
You know all of this BEFORE you even make the trade. This is the plan. And you stick to it.
Let’s say the investment takes a turn for the worse, like in the above example. The coin you are investing in drops 50 percent.
Where are you in this scenario?
You are sitting happily with $950, which you have already reinvested into a new coin and a new opportunity. This all happened because you were willing to risk 5 percent of the investment and had a stop-loss in place to ensure you were risking no more than planned. When the coin dropped, it sold for a 5 percent loss.
You are disappointed it did not rise 20 percent like you had hoped, but now you have potentially made more than the difference of the $50 loss through other trades that you have made, while others are still holding their coin at a loss.
If you want to learn more about how to place a stop loss and its importance in protecting your investment, click HERE to watch a video that explains everything you need to know. And as always, if you have any questions do not hesitate to shoot us a message, comment below, or email us at steven@bitcoinissimple.com. Be sure to follow and up-vote if you like what you read!