There are two strategies in Crypto investing: trading and hodling.
It has been debated time and time again which strategy is better, to the point where it becomes a full-blown battle from the hodlers and daytraders. In this article I'm not gonna choose a side but rather I want to point out on the best decision based on what I've learned since last year being a crypto researcher and investor.
First of all what's the difference?
Some would say that trading is short-term speculation while HODL is long term speculation. Basically, both strategies are about predicting the market short-term and long-term.
HODLing is analogous to the buy and hold strategy with stocks. Put simply, you buy a token, then hold it for as long as you can and sell when the value rises significantly to your satisfaction.
HODLing is in a way investing in a coin you believe in; not in the sense like religion or anything like that. I meant believing as in knowing the fundamentals of a particular token, the team behind it, their roadmap, and thinking that "this token has a lot of potential and is very likely to go up in the long run".
This is called 'Fundamental Analysis'. It is the examination of the underlying forces that affect the well being of a particular token. In stocks this means reading and understanding financial statements. In crypto, there are no financial statements but they always have a whitepaper.
A white paper is a detailed description and plan of what the project is aiming to accomplish. It is basically, like a company mission statement with details about how their project is going to work. A lot of whitepaper has some technical details so it might take more than one reading to fully understand their message.
It's not hard to do; just research your crypto rigorously and see if it is worth for the long term. In my opinion the best HODL is bitcoin. For instance, you buy bitcoin now at $8 thousand, then in 2020 it rises to $200 thousand and you sell. That's a lot of profit in 2 years time.
This strategy is easy and beginner-friendly. Some HODLers even buy and forget about it for a few years then cash out with big bucks.
Pros of HODL
• Relatively less risky than trading especially if you stick to core cryptos like BTC, ETH, LTC, BCH
• Not very time-consuming
• Easier to do
Cons of HODL
• You will likely not have much earnings for a while
• You are more likely to lose your private keys since you are not involved enough to care so much about it.
Trading is buying and selling different tokens regularly. Most traders do this on a daily basis. In fact, a lot of crypto traders I know treat this as a full-time job with overtime.
What differentiates traders from hodlers is that traders trade a lot more often and use Technical Analysis.
Technical analysis is a trading discipline used to evaluate tokens and identify trading opportunities by analyzing statistics gathered from trading activity, such as price movement and volume. It's essentially the quantitative study of humans. It uses historical data and pattern recognition to help formulate and anticipate where markets will move.
With skill, traders speculate on which token is gonna go up in value and which ones will go down. Sometimes their prediction is right. Sometimes it's wrong.
In trading, you need to make calculated risks in each trade. The key here is to win more than you lose. Once you get better at this, you will likely be making daily profits from 1%-10% or more. There actually is no limit to how much you can make.
It needs to be noted that trading needs skill and if you're a beginner you better not go all in because you could lose all your funds.
Full transparency: I've been a hodler longer than I've been a trader but I've sought the help from trader friends and got a lot of insights from them. Especially Zigzagcrypto and Uptix you guys taught me so much about trading; more than you'll ever know.
Pros of trading
• Earnings are daily or every other day depending on skill
• Fun if you like numbers and charts
Cons of trading
• Difficult to master
• You won't earn much until you have bigger capital
• Very time-consuming
Note: Both have other common pros and cons like 'tendency to be emotionally involved on the investment' but this is just for the sake of contrast.
So which strategy yields more profits?
No matter how good or smart you think you are, you can never time the market accurately and consistently. Being a chart wizard alone won't save you. There is no getting away from the fact that news of a hack, regulation, exchange listing, etc. can all have a major impact on the price and the market.
HODL is a better strategy if you are a beginner or even intermediate investor, but only if you need to choose one! That's the thing. Who said you're only suppose to use one strategy. This is crypto baby! There are no rules.
In stocks, HODL (buy and hold) is historically proven to be more profitable than day-trading.
However, stocks are not as volatile (liable to change in price rapidly and unpredictably) as cryptos are. Check out 1 year charts of Bitcoin and Facebook below for comparison.
WARNING: Do not focus on lines. You will be deceived. Look at the price on the right of each chart. Facebook price fluctuations are in a year are only 150–220. That's not even close to Bitcoin which fluctuated from roughly 2500–19000. Volatility in crypto put stocks to shame.
FACEBOOK 1 YEAR CHART
BITCOIN 1 YEAR CHART
With great volatility comes great opportunity…for profit. Therefore, you shouldn't ignore the opportunity that comes with Technical analysis and volatility.
There are always fundamental reason behind big price moves. However, you don't always hear about these until it's too late. A technical trader will on the other hand, will be able to react on this move as the chart will confirm the move much sooner. You can make a lot of short-term gains that will not necessary compromise your long-term strategy with trading.
Rather than choosing one strategy, why not combine those strategies so you can get the best of both worlds. So the answer is, BOTH!
The Three Elements of a Good Crypto Investor
Fundamental knowledge and how this can affect price.
Technical knowledge and how you can predict movement based on charts.
Price action.
Price action trading involves placing trades exclusively based on price action rather than fundamental or technical analysis. Sometimes markets can move with what seems like no reason at all. I might make an article about price action alone soon.
The bottom line: How much of trading or HODL you'll do depends on the type of person you are and how much time you're willing to put on market analysis. For beginners, I recommend HODL first then try to learn trading on the side. You alone can figure out that sweet spot between trading and HODL that is just right for the type of investor you are.