Cryptocurrency copy trading: you do not have to work hard to reach financial freedom
TL;DR (too long; didn’t read)
Are you tired of the hassle and stress that comes with manual trading and buy-and-hold investment strategies? Do you want to maximise your investment returns without spending countless hours analysing the markets and researching individual cryptocurrency projects? If so, copy trading may be the solution you’ve been looking for. It allows you to automatically copy the trades of experienced and successful traders, eliminating the need for you to constantly monitor the markets and make investment decisions on your own.
In this article, we’ll explore the benefits of copy trading over the usual approaches to cryptocurrency investment.
The pros and cons of the buy and hold approach
Investors who prefer a buy-and-hold strategy (also referred to as “HODLers”) are usually in it for the long haul. They believe that the best way to maximise their returns is to buy carefully chosen cryptocurrencies and hold onto them for an extended period, usually months or even years.
An easy journey from buying to selling
The main pro of the buy-and-hold strategy is that it requires very little effort after you have bought the coins. Once you’ve picked them, you can sit back and let them grow over time. You don’t need to be constantly monitoring and trading.
Deciding what to buy requires hard work
However, proper HODLing requires significant effort upfront. If you see yourself as an investor and not a gambler, you should avoid putting your money in projects you don’t understand. And “understanding” is a process that can take a lot of time depending on where you are starting from in your cryptocurrency investor journey.
Do you know what proper due diligence looks like in the world of cryptocurrencies? Do you even understand the broad concept of “due diligence”? If you replied “no” to either of these questions, start from there. In the process you might encounter terms and concepts you are not familiar with. So get ready to spend hours in rabbit holes before you can move forward.
Once you have a better idea of the important information to look for and what they mean, you’ve only done the preliminary work. You then have to gather the data (if you know where to find it) and analyze it to extract the necessary insights. Only then can you decide if you want to put your money on that cryptocurrency you’ve spent hours doing research on.
Just to give you a rough idea, you typically need to research information like:
- market capitalisation: gives you an idea of how much money is invested in the cryptocurrency and its potential to grow
- price history: helps you to identify any patterns that could affect the value in the future
- technology: a good cryptocurrency should sit on some solid technology and provide value to users. Get ready for deep technical rabbit holes
- adoption rate: if more people are using a coin, it is more likely to gain value overtime
- competition: check if the project is better than similar project
- regulation: are there any pending regulations that could threaten the value of the project?
- team and community: a strong and experienced team along with an active community are good signs
- liquidity: high liquidity means that a coin will be easier to buy or sell, and its value will evolve in a more stable way
If it sounds like a daunting task and you are already sweating by reading this, it’s a sign that this approach is not for you.
Is it a good time to sell? Maybe, maybe not
Another issue with HODLing is that knowing when to sell is often more of an art than a science. You could sell a coin too soon and miss out on potential gains.
Imagine that you bought some BTC (Bitcoin) on January 1st 2017 at a price of 908.585 USD and sold on December 31st at a price of 17,527 USD, making a crazy 1829.04% return in a year! This is insane knowing that the SP500 had a 21.83% return on that period, which is already very good. However, you would have made a staggering 6995.60% return if you had waited until November 7th 2021 (64,469.527 USD).
Conversely, if you hold on too long, a sudden downturn can wipe out years of gains. Any LUNA HODLer could testify to the pain of losing all your gains almost overnight.
An article to better understand what happened to the LUNA project: https://www.forbes.com/sites/qai/2022/09/20/what-really-happened-to-luna-crypto/?sh=6c8f46ea4ff1
The pros and cons of manual trading
Manual trading involves actively buying and selling a coin based on your analysis of the crypto market. You can hold a coin for minutes, hours, days and maybe weeks but rarely beyond that.
If you have the time and the skills, say hi to some serious returns
The main advantage of manual trading is that it allows you to take advantage of short-term market fluctuations. If you’re skilled at analyzing the market and timing it, you can identify opportunities to buy low and sell high, potentially yielding significant gains. With its numerous coins and trading pairs, the many exchanges, the frequent emergence of new products (futures, swap etc.) the cryptocurrency market offers a wide range of trading opportunities.
But, do you have the time and the skills?
Again, this approach requires knowledge and skill. To be successful, you will need a deep understanding of market trends, technical analysis, and risk management. Besides, cryptocurrency markets are open 24/7, so if you intend to get your daily 8 hours of sleep and not turn into a zombie, you will probably miss many opportunities.
Are you ready to trade your peace of mind for better returns?
Constantly monitoring the market and making investment decisions can be mentally and emotionally taxing. It requires very strong, we can even say “robot-like”, emotional stability. Fear, greed, and other emotions can cause you to make impulsive or ill-informed trades, which can lead to significant losses.
Be mindful of trading fees
Each buy and sell that you perform comes with its share of trading fees. Since you are making much more of these operations than with HODLing, be ready to see a portion of your profits being eaten by the fees.
The pros and cons of setting up your automated trading strategies
Automated trading involves using algorithms and software to execute trades automatically based on specific conditions or criteria. This approach requires some initial effort to set up, but once it’s up and running, it can be relatively hands-off.
Teach the algorithm and let it do the work for you better and faster minus the day to day stress
Contrary to manual trading, automated trading eliminates human error and emotion from the equation. Algorithms can analyze the market and execute trades much faster and more efficiently than humans can, potentially yielding more gains.
But first you need the knowledge and the skills to automate that knowledge
However, automated trading also has its cons. It requires some technical expertise to set up and maintain. For instance, at AlphaGrow, we rely on statistics, computer science, signal processing and machine learning techniques to design our trading strategies. On top of that, we made the choice to build our own infrastructure which required strong software engineering skills. Of course we also have expertise in finance and trading.
All this know-how is spread across multiple team members and represents decades of learnings and practice. So the barrier to entry is quite high.
You can’t fully trust your algorithms: they will work until they don’t
And even after you have designed profitable strategies and a stable infrastructure, some level of monitoring is required (which can be more or less automated). As explained here, it is advised to keep questioning the validity of your automated strategies since it’s not guaranteed that they will keep be profitable over time.
More bills to pay
Automated trading can be costly. Similarly to manual trading, each trade will require you to pay trading fees.
If you decide to build your own execution infrastructure and host it on the cloud, you will have to pay hosting fees. If you prefer relying on third party execution infrastructure, you will most likely need to pay fees to them.
Why you should automatically copy successful traders instead
Copy trading involves automatically copying the trades of successful and experienced traders. As you’ve already guessed, it removes many drawbacks from the previous options.
You don’t need to know, you just need the returns
An obvious advantage is that it allows you to benefit from the expertise of seasoned traders accumulated over the years. So you can still get the returns, without spending the effort and time needed to acquire the skills.
Enjoy stress-free passive income on auto-pilot
The monitoring time required is also very low compared to manual trading and automated trading. You can still have a glance once in a while to confirm that the traders you have chosen are still successful. When needed, you can stop following traders that are no longer profitable and/or start following traders that are profitable. Overall copy trading should be much less stressful than manual trading.
Copy trading is not risk-free
Markets can be volatile, and even experienced traders can make mistakes or suffer losses. It’s essential to choose the right traders to copy. Not all traders are created equal, and some may have a riskier or more aggressive trading style that may not be suitable for your investment goals. Although the effort is smaller compared to HODLing, you still need to do some work in terms of due diligence. You should at least have a good understanding of how the trader you are following has performed in the past over multiple market regimes and assess whether the returns are worth the risks for you.
Conclusion
In a nutshell, copy trading is a total game-changer for anyone who wants to generate passive income and get closer to financial independence with minimum effort. Seriously, why spend hours poring over charts and analyzing market trends when you can just copy the trades of successful traders and let them do the heavy lifting for you?
Of course, as we’ve explained, it’s important to remember that copy trading, like any investment strategy, comes with its own set of risks. Minimum effort doesn’t mean no effort, so you still need to do a bit of work: due diligence, monitoring and occasional course correcting will be needed.
About us
At AlphaGrow, we believe that everyone deserves to reach financial freedom to gain more control over his/her time and utilize it in a way that is more meaningful. We are dedicated to designing successful trading strategies that you can follow to make more passive income and make bigger steps towards a more fulfilling life.
Our Binance trading strategy:
https://www.binance.com/en/copy-trading/lead-details/3812864465187352322
Our website: https://alphagrow.io/
Contact us: contact@alphagrow.io
