Day Trading vs. Long-Term Cryptocurrency Hodling: Equitable Analysis
There are several ways to benefit from trading the cryptocurrency market. Day trading and HODLing are some of the common ways most people use. The debate rages on between crypto market traders, who all have different trading/investing strategies, on the most efficient short-term or long-term way to invest in crypto. Day traders and long-term crypto hodlers employ different approaches to trading the markets.
Day traders are usually considered the mavericks of the trading scene. They are known for taking huge risks and seeing huge profits/losses gains in short periods — sometimes buying and selling the same asset multiple times within a 24-hr period. Crypto hodlers primarily buy and hold crypto assets based on past performance and potential use cases based on market movements. This guide will compare and explore the differences between these two.
What is Day-Trading?
Day trading is a form of short-term trading wherein the same crypto asset you purchase is also sold before the market closes for that day. The concept of day trading became even more prominent in 2021 when crypto markets were everywhere. Crypto day trading is undeniably risky, but it also promises bigger benefits that make the risks worth taking. In fact, day trading has often been compared to binaries due to its fast-paced risk and profit exchange.
Short-term traders can be day traders or scalpers. Day traders are traders whose trades last about 1–2 days. Crypto day trading involves short-term profits and lower volatility risks. Ultimately, crypto day trading allows you to earn from small and minor changes in the market prices.
Day trading strategies are considered efficient considering the market’s high turnover, liquidity, and efficiency. However, making profits from cryptocurrency day trading comes down to trading skills and experience. If you can stay consistent and focused on learning about the essential trading indicators, you have a good chance of being successful in this niche.
What is Long-term Hodling?
Long-term crypto hodling is usually implemented by investors with a lower risk appetite. They buy and hold a coin for weeks, months, and even years. The term hodling is a popular crypto lingo that means “hold unto your dear life”. It’s basically a phrase telling traders to keep their assets regardless of the market conditions. Crypto “hodlers” typically refuse to sell and remains unaffected by daily price fluctuations.
Hodling is a relatively safer option than actively trading the market daily, as investors are less exposed to short-term volatility. Long-term hodlers employ different strategies to diversify their portfolio, let the market move accordingly, and then respond to it.
One of the most effective trading strategies long-term traders use is to dollar-cost average (DCA) cryptocurrencies, which involves continuously entering various small positions over a long period.
Due to the more stable nature of long-term crypto trading strategies, adhering to the concepts of long-term trading while doing day trading can give you a more balanced playing field as you trade.
Day trading vs. Long-Term Trading
Long-term traders are often called Position Traders. They analyze the market as a big picture, and then they open trades when they see that the situation is right, according to their own analysis. Then they may hold on to their positions for days or weeks. Long-term trading is suitable for traders with more patience and who are able to wait a long time to see returns.
On the other hand, Short-term traders can be day traders or scalpers, where trade positions are opened and closed within a short period of time. Day traders may explore different strategies, such as Scalping, Arbitrage trading, etc., to win just small profits in a very short time.
Ultimately both Long-Term Trading and Short-Term Trading have their own advantages and disadvantages, and choosing to day-trade or hodl depends on risk appetite, capital, and how much they are willing to win or lose. Below are the benefits and drawbacks of Long-Term Trading and Short-Term Trading.
Benefits and Drawbacks of Day Trading
Benefits of day trading
- Potentially big profits for leverage positions
- Traders can make profits regardless of the market conditions
- Faster profit gains
- More flexible: No long-term speculation is involved in foreign exchange day trading. This results in a more flexible timetable for the investor,
Drawbacks of day trading
- Emotions might set in, causing traders to invest more than they can afford to lose;
- Self-discipline can be challenging to utilize
- Large leverage positions can lead to massive losses.
- Actively analyzing and paying constant attention to the market.
- Tax compliance can be daunting.
Benefits and Drawbacks of Long-Term Trading
Benefits of Long-Term Trading
- More time to analyze the asset: Analysis can be done in maybe a few minutes to a few hours a week, and when a good trading opportunity is identified
- Trading is less risky: long-term hodling avoids all the price movements
- Reduces emotions like FOMO and FUD
- Long-term trading enables traders to defer their tax liability.
Drawbacks of Long-Term Trading
- Traders often feel stuck during bear markets, as the adrenaline to sell often sets in, especially at a loss;
- Little profits for traders with little capital
- Long-term hodling can be risky as some assets may not have good potential and backing.
- Security is another major drawback. It is important for traders to go for a highly secure crypto exchange to avoid common hacks and breaches.
Wrapping up
While trading crypto markets can be challenging, many day and long-term traders view them as opportunities to make profits, research, and learn more about the market.
Hodlers might tend to hold on to their coins regardless of the market conditions, and day traders are more actively involved as they take advantage of short-term profits and lower volatility risks. Both can be profitable; it all depends on your risk appetite. Moving forward, regardless of the trading strategy you are opting for, do not lose more than you can handle.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
