Before diving into the chaotic world of trading vs hodl’ing and whether it is better to trade cryptocurrency or HODL in 2022. Let’s first discuss the terms HODL and Trading in cryptocurrencies to clarify this term’s confusion.
Learning the difference between Trading and HODLing is a great starting point for your cryptocurrency trading journey. However, we recommend not starting either before learning all the fundamentals first.
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What is HODL?
The phrase “HODL,” a misuse of the word “hold,” has become widely used in the Bitcoin and cryptocurrency communities to refer to a certain investment method. Under this method, investors buy assets to keep them in their portfolios for extended stretches of time. It’s just one of the numerous slang words people who trade cryptocurrencies use.
The word “HODL” was first used in a post made in 2013 on the Bitcoin forum. On the website Bitcointalk, the message was titled “I AM HODLING,” and it could be found there. The author of the essay continued by stating that because he was unable to forecast market movements well enough to be a successful day trader, he would instead choose to hang onto his capital. Other users of the site quickly welcomed the typo, and it was soon turned into a meme. As a direct result of the activities taken by the Chinese central bank during the week that the piece was published, the price of Bitcoin fell by about forty percent.
Now that the term HODL is clarified, let’s talk briefly about trading in cryptocurrencies.
Understanding trading fundamentals
Buying and selling cryptocurrencies to make a profit is what’s known as cryptocurrency trading. In the same way that traditional currencies have a foreign exchange market (also known as forex), cryptocurrencies have their very own digital currency exchange market on which coin trading can take place. In addition, trading in cryptocurrencies takes place around the clock, as opposed to the traditional stock market, which shuts down after each trading day.
To begin dealing in cryptocurrencies, traders require a cryptocurrency wallet on an exchange. Because of the extreme volatility of the cryptocurrency market, it is recommended that novice investors begin their trading careers with well-known cryptocurrencies such as Bitcoin or Ethereum. Although there are a great number of cryptocurrencies available, beginners should focus on trading in prominent coins. Additionally, you may use various wallets to exchange currency effortlessly and get started with your trip into the world of cryptocurrencies.
Now that you are clear on what HODL and trading in cryptocurrencies mean. Let’s jump right into the article and dig out the answer of which one is better than the other one.
Trading Cryptocurrencies VS Hodling
Top Choices for Beginners
When entering the bitcoin market for the first time, new investors will often choose one of two approaches.
The two choices that beginners go for are:
1. Invest in bitcoin and keep it in your portfolio (HODL).
2. Alternately, they might trade cryptocurrencies and attempt to increase the value of their dollar or cryptocurrency holdings.
When it comes to these two options, the conventional opinion on the internet is that the HODL method is the superior choice for beginner traders. Of course, there is some truth to what this notion entails, but the fact is that if any of these techniques are handled poorly, they both present some level of risk for beginning traders.
The top hurdles faced:
When making such a decision in the crypto realm, the following issues are sure to erupt:
1. People who HODL tend HODL to the top and then all the back to the bottom again (i.e. they tend not to take profits).
2. The vast majority of individuals are not skilled merchants. Especially when it comes to the incredibly complicated and risky market for cryptocurrencies, which may be tough to manage.
Is there no way out of this mess?
It’s not quite that. Most seasoned traders and investors believe that the best strategies involve either trading while utilizing risk management and focusing on learning or HODLing while also having an exit strategy. In a nutshell, throwing a little strategy into the mix will make a significant difference.
Let’s examine both of these strategies to determine which one has the greater potential benefit, whether or not they can be merged successfully, and the best way to put these strategies into action to get the desired results while avoiding any potential complications.
What are the pros and cons of HODLing?
As you are already aware, it is a method of making investments throughout a lengthy period that entails purchasing and maintaining ownership of a crypto asset in the hope that its price will rise over time.
The Many Benefits of Holding Onto Your Investments:
Simple to carry out and requiring minimal effort
You would be required to conduct some preliminary investigation on the cryptocurrency initiatives in which you have faith. You should appropriately distribute your finances and allow your assets to expand over time.
There is no requirement for continuous market monitoring to take place.
You don’t have to face any stress
The cryptocurrency market is extremely volatile, with big price increases followed by price decreases. There is no requirement to timing the market to get into a position. You also do not need always to keep an eye on the chart.
You will save money
As a result of the lower frequency of your transactions, you won’t have to spend as much on commission costs. This is because you will only need to make a few trades to establish a position. If you hang on to your cryptocurrency investments for a long enough period, you may be able to reduce or eliminate the taxes you owe on your capital gains. However, it is important to examine the legislation in your country first because it could be different from those in other nations.
The Downsides of Keeping Your Holding your crypto:
Takes discipline
As was discussed before, this is a plan for long-term investing. Holding onto anything demands perseverance and the ability to keep your emotions in check during the price change. There is also no assurance regarding the time frame you might anticipate beginning to receive a return on your investment (ROI). It might take several years to see the return on investment you want.
Lack of awareness of the proper time to take a profit
HODLers might not be aware of the best time to sell their cryptocurrency. When there is a significant profit, people could continue holding onto it in the hope that it would climb even more, but it might end up plummeting instead.
Or, to safeguard their profits, they would immediately liquidate all of their holdings, which would result in additional price inflation.
To avoid these outcomes, you should decide on your sales approach as soon as possible. For example, you might want to think about using a tactic called slow selling. This phrase refers to selling pieces of your asset at various price levels.
All investments are tied.
Because this is a long-term approach, it implies that your finances will be committed to this course of action for an extended period.
This may cause you to pass on other investing chances.
What are the pros and cons of Trading?
Cryptocurrency trading, as you know, consists of rapidly purchasing and selling cryptocurrency for profit. When they believe the price of a cryptocurrency will rise or fall, cryptocurrency traders will either purchase or sell that cryptocurrency. The concept is straightforward: purchase cheap and sell big.
The Benefits Obtained Through Trading
You can enjoy the potentially large gains
You may keep an eye on the market, do some research on it, and then enter a trade if the chart seems like it’s about to run. For example, it is not unusual for the price of a coin to surge by as much as 30 percent inside a mere day. If you have strong analytical abilities, you should be able to capitalize on market patterns to increase your chances of making a significant profit.
You can take charge of your own career
Trading may be a full-time occupation for some people. When you engage in day trading, you are free to determine your working hours and workload. After reaching your income goal for the day or the week, you are free to relax until the following day that you are scheduled to work.
Limitations of the Trading
Requires familiarity with both the basics and the technical analysis
The ability to do fundamental and technical chart analyses is necessary for traders who want to avoid incurring losses. However, before starting, there is significant preparation work and studying.
Requires the skill to control one’s feelings
Because of the volatility of cryptocurrency values, trading them is a considerably riskier endeavor than holding onto them for the long run. You have to be willing to either cash out of a losing cryptocurrency while it is plunging more in value or continue holding onto it even after it has dropped by fifty percent in value. Because anything may happen in this unstable market, you ought to make judgments based on logic rather than letting your emotions get in the way.
So, is it better to trade or Hodl in 2022?
There’s no optimal crypto strategy. Hoarding and selling have pros and cons. The optimal strategy relies on your risk tolerance. Take a proportion of your crypto holdings to start trading. You may enhance your trading portfolio as you learn more about crypto.
You may also combine the two to meet your risk profile. Whatever your plan, conduct your research. Do your homework before investing in a crypto coin.
As a crypto novice, be careful. You decide whether to trade or hold; these tips should help.
