Advantages and Disadvantages of Long-Term Crypto Trading
The abbreviation HODL is probably unfamiliar only to amateur cryptocurrency traders. The following word isn’t present in any dictionaries, although, you still come across it on topic based websites. According to some, HODL is the abbreviation to the phrase “Hold on for dear life,” meaning, to purchase cryptocurrency and hold on to it practically forever. According to a different version, the person who first mentioned it on Bitcointalk, implied that he would hold on to the Bitcoin even at the peak of its price, simply made a typing error.
Actually, the trading method can be explained in simple terms “buy and hold,” which has long been implemented in foreign exchange market. When it comes to long-term trading of BTC or altcoins, it is implied that coins are purchased from a period of six months. But more often the acquired assets are not planned to be sold for a year or two. That’s more of an investment rather than trading.
In this case, investors are motivated by the idea that the price of the coins in the long term will undoubtedly increase. Even high volatility of cryptocurrency is not taken into account, as the total capitalization of the entire crypto market is expected to increase.
A good example would be bitcoin, which traded below 100 USD in July 2013. Investors that purchased one coin and held it up until December 2017, could have sold it at its peak for 19 000 USD. Return on initial investment would have been 19 000%!
Perhaps, the primary advantage of this strategy is its ease: you would not have to spend time on regular trading, conduct complex technical analysis involving graphs. You simply have to develop the ability to wait out and not panic when the exchange rate drops. Traders that opt for a short-term trading strategy or scalping, are forced to keep track of price changes and manage to perform multiple operations. The long-term trading option will allow you to feel more at ease.
An equally important advantage of long-term trading would be the lack of large initial investments. When using this scheme, you can opt for a smaller sum. Cryptocurrency can be purchased in small batches, buying as many as you can afford at the moment. When holding positions long term, there is no such level of stress that scalpers face because of intraday price falls. Investors that hold long-term positions are less bothered by the daily volatility of the crypto market.
The downside of this strategy would be that you might miss out on numerous opportunities to earn. It often happens that bitcoin actively grows in price during a short period of time (days, hours), but then declines equally fast. At short-term trading you could catch the moment and take a chance of the situation.
The biggest disadvantage of a long-term trading strategy would the absence of a full-fledged market analysis. Because of this, one could easily miss negative tendencies in the market. Unpredictable events could collapse prices, which then will no longer recover to their initial level. In order to prevent these situations, it is recommended to follow news from the crypto sphere at least from time to time.
Published at Wed, 18 Dec 2019 14:16:30 +0000
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