What is the difference between Holding and Trading Cryptocurrency?
What do you preferred to do? When we all Know that crypto currency is very volatile?
Trading or better said Investing in cryptocurrencies is a strategy of making money from cryptocurrencies by buying and holding crypto assets with the hope that their value will appreciate in the future. Also referred to as HODLing — a misspelling of “holding” that has since caught on — cryptocurrency investing involves buying and holding positions over longer time horizons, often regardless of near-term price and market fluctuations.
HODLers, as cryptocurrency investors are called, buy cryptocurrencies they fundamentally believe in and confidently hold on to them. They reckon that the value of their assets will rise over the long term, and they worry less about timing the market.
Timing the market refers to buying or selling an investment based on predicting the best entry or exit point. It’s like believing that you have a crystal ball that can tell you which way the market will go. With that confidence, you would be willing to wait for lower entry levels into an investment or higher selling levels.
Timing the markets are challenging in any asset class, let alone volatile markets like cryptocurrencies, where price swings happen quickly. The danger of waiting to time the market means you may instead miss a trade entirely. In general, longer-term investors don’t try to time markets or look to profit off of trends. The tide that lifts more boats is more important than catching the specific wave that may propel a single trade higher.
“There are some terms and conditions I must enforce. Nothing in this article is financial advice and doing your own research is the only thing I endorse. You can use this article as part of your research of course, but for all the rest, a licensed financial adviser is your best recourse.”
Holding vs. Trading: The Differences
As mentioned, investing and trading are intertwined, but sometimes the two terms are casually and interchangeably used. After all, traders can make investments, and investors can enter trades to buy and sell assets. The difference between investing and trading can be somewhat nuanced. To decide on the best strategy to adopt, we’ll analyze the differences, with reference to a few key factors.
Investment Time Frame and Period
Investing or Holding
A critical difference between crypto trading and investing is the time frame. Cryptocurrency investing is typically a long-term strategy. Investors or HODLers believe in the long-term viability of their coins. They minimize trading on the short-term price movements of cryptocurrencies. A typical investor will buy a cryptocurrency asset based on its long-term potential, with the hope of selling it for a tidy profit after periods lasting perhaps years.
Cryptocurrency trading
It is a short-term strategy. Trading leverages the short-term volatility of crypto-asset price changes for profit. Typical trading time frames range from minutes to days. Although the rewards are faster, trading crypto requires a lot of effort. For those that have put in the work (and perhaps have a bit of luck), cryptocurrency trading can be very profitable due to the high volatility of the cryptocurrency market.
Here are the main trading strategies in cryptocurrency markets:
- Day Trading: Day traders conclude trades within a day and rarely hold overnight positions. They constantly monitor the market to take advantage of intraday price movement. The time duration for each trade ranges from minutes to hours.
- Scalping: Scalping involves buying and selling coins on minimal price movements. Scalpers are the most active traders and execute several trades to make a small profit from each transaction, which could add up substantially at the end of the day. Scalping trades are short-lasting minutes or even seconds. Scalpers make many trades daily and try to skim a profit without holding positions for long.
- Momentum Trading: Momentum traders execute trades based on recent price trends. They jump on a price trend, buying low in an upward trend and selling once the price breaks momentum, and vice versa. They aim to take advantage of broader uptrends and downtrends, hoping that the direction of the asset will maintain its momentum. Momentum traders need to have a fairly good sense of timing and the ability to read the market. A momentum trade can take anywhere from an hour to weeks to enter and exit.
- Swing Trading: This technique takes advantage of a coin’s short-term price swings, with a trade typically lasting between a day and a few weeks. Swing traders use technical analysis to predict large movements in coin prices in a particular direction in a short period. The time frame for a trade is generally a bit longer or intermediate-term than that for a momentum trade.
Trade Analysis
Trade analysis is tool traders use to evaluate investments and spot profitable trading opportunities, often by considering various factors or analyzing historical trends. It’s critical for making sound investment decisions and picking the right cryptocurrency assets.
There are two basic types of trade analysis: fundamental analysis and technical analysis.
Cryptocurrency investors
Rely on fundamental analysis since they bank on the long-term viability of a coin. The fundamental analysis primarily evaluates the long-term potential of a coin by establishing an intrinsic value or worth for the asset. Various metrics can be used, such as analyzing the project and team or cryptocurrency usage and adoption rates.
Cryptocurrency traders
Figuring out price direction and market positioning. As a result, they often use technical analysis. Technical analysis involves predicting future prices through historical analysis of price data, using price indicators and charting tools.
Short-term price movements in crypto can be very unpredictable. Therefore, a trader must be deeply knowledgeable about technical analysis to try to time the market and profit from price volatility. This is a significant difference from cryptocurrency investing, and it’s the reason that experienced traders tend to be more comfortable with frequent trading. Traders often base their buying and selling decisions on technical analysis, which can be a repeatable strategy.
Trading and investing are different approaches to earning in the cryptocurrency market. Deciding which one is better for you depends on your risk appetite and time availability.
If you’re comfortable with taking on frequent risks and have the capacity to monitor markets constantly, trading might just be the right strategy for you. If you prefer a more laid-back approach, then you should consider investing for the long term. Doing a bit of both is also an option.
Bottom Line
The cryptocurrency market is as exciting as it is volatile — so tread with caution. Understand the key differences between investing and trading crypto before deciding the approach that suits you best.
Ultimately, a smart investor tends to recognize the different parts of market cycles to take advantage of the market conditions and HODL in the hope of the asset’s price appreciation. In contrast, traders tend to profit from a bull or bear market from the short-term price movements. Still, both investors and traders need to deploy a proper risk management system or contingency plan to exit the market when the market goes in an unfavored direction.
