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HODLing vs Trading

admin,April 25, 2018

hodling-vs-trading

As seen Cryptocurrency is insanely volatile, with many opportunities for gain as well as loss, and if you don’t have a solid understanding of the fundamental and the technical, or any trading strategy, you are more likely to result in a loss.

Even a trader who has learnt the fundamental or technical analysis, isn’t guaranteed 100% success because the market is difficult to predict.

“Just trade” or “Just hold” are poor strategies which have many potential traps. In this article, we discuss whether HODLing or Trading is better or not.

 

HODL

No, you are not reading it wrong! The term “HODL” is a misspelling of “hold” that became a well known cryptocurrency meme. HODL stands for “Hold On for Dear Life”. Or perhaps in detail, “Hold On for Dear Life” through the crypto ups and downs. “HODL” is pronounced “HOD” “L,” as a meme it is meant to be pronounced like it is spelt.

The HODL method is good if you are in an uncertain movement of the market, like sideways; when the price is only going up and down in a specific range. HODL is also recommended in an uptrend position, where the price is down but is going higher. By holding it, you will get a bigger profit.

A new trader or inexperienced trader will find HODL as a good strategy since it keeps them from panic selling or getting itchy to sell after a small profit.

However, the HODL strategy often misleads people. Most fall in the HODL pitfalls, being:

  1. New investors or traders tend to enter a position when the bull market is running, as other people’s gain tempts them. They enter at a high price, which gives a bigger risk than the reward.
  2. Most HODLers have no experience when is the best time to take profits, because the strategy they have is “just hold”. As traders are only able to gain profit when they sell the coin, this may prove a costly strategy.
  3. When a HODLer enters the bullish market but then the price falls down, HODLers usually stay in the market hoping that the price will go up again. However, no one can be sure when that happens – great if it happens in a day, but there is always the possibility of it taking some months, even years.

 

TRADING

Trading is a short-term transaction, and can even be done in a few hours. It’s really a basic concept, buy low sell high, but it doesn’t always go to plan for traders;

  1. The trader takes a profit too early before a big run, and misses out on a better profit.
  2. When the price goes down, the trader sells out as the price reached their stop loss, but then don’t re-enter the market once the price goes up again.
  3. A trader is conditioned to trade, and sometimes they may miss out a chance in a very bullish market due to not HODLing.

 

HODLing vs Trading?

While many traders will want to choose between “to trade” or “to hold”, each strategy has its strength and weakness. Combining both of these strategies and deciding on the best one to apply dependent on the market condition is the wisest choice, as the market is very changeable and will sometimes go beyond our initial analysis.

For an inexperienced trader, creating a firm plan when to enter and exit the market should be reassessed frequently, in fact several times a week until a solid understanding of fundamental and technical analysis is reached. Once they become familiar with the market and their decision making becomes more stable, they can try to become a HODLer.

When you see some really great profits in a market movement, consider taking some [not all] money off the market to average back in with later. And when the market is bearish, consider to take out some off the market, so when the price goes up, you’re still on track.

Once you understand a bear market from a bull market, and what targets you are aiming for to sell or to buy, HODL will likely no longer be your best strategy.

So, ultimately which ever strategy you choose, success is more about understanding the market, learning trading skills, and creating a solid plan… but one you are willing to re-evaluate when the need arises.