HODLing vs Trading: What are the Pros and Cons?

First published
February 4, 2022
Last updated
June 21, 2022

The debate between “HODLing” versus “Trading” cryptocurrency has been a widely discussed topic. This article aims to introduce these investing strategies and offer some insights to cryptocurrency investors, especially those who are new to this.

What is HODLing?

Hold On for Dear Life

HODL-ing originated from a famous misspelling of HODL from a drunk bitcoin investor back in 2013. Since then, HODL has become a famous crypto acronym for “Hold On for Dear Life” which also means to ignore market volatility and hold onto your crypto tightly even in bearish markets.

This is a passive investment strategy that is used in the long-term market which can be easily done by simply buying bitcoin and holding for months or years until it reaches your price target. People who believe in the potential and the long-term value of bitcoin would often choose to HODL.

If you intend to HODL, you can consider buying Bitcoin or your chosen crypto periodically and average into a position. This refers to buying a small number of Bitcoins on a weekly or monthly basis. For instance, if you have a budget of $10,000 to invest, you can buy $200 worth of Bitcoin once a week or $1,000 once a month. This buying strategy helps to mitigate the risk of buying Bitcoin at a high price. By spreading out your purchases, you can buy your Bitcoin at different price levels and reduce the influence of market volatility.

Advantages of HODLing

✓ Easy to implement with little effort

You would only be required to do your initial research of the crypto projects that you believe in. Allocate your funds accordingly and let your assets grow over time. There is no need for constant monitoring of markets.

✓ Save money

Since you would only be making a few trades to take position, you would not have to pay much commission fees as the frequency of trading is lesser. You could possibly pay lesser or zero taxes on your capital gains from crypto if you hold them long enough. However, regulations may not be the same in every country so be sure to check on yours first.

✓ Less stressful

The crypto market is volatile with dramatic upward bursts and downward falls. There is no need to time the market for an entry position. You also need not monitor the chart constantly.

Disadvantages of HODLing

✕ Requires patience

As mentioned, this is a long-term investment strategy. Hodling requires a lot of patience and mental capacity to not allow your emotions to affect you during price movements. There is also no guarantee as to when you would start seeing your Return on Investment (ROI). You might take years to start seeing your desired ROI. 

✕ Not aware of when to take profit

HODLers may not know the right timing to sell their crypto. When there is huge profit, they may continue hodling, hoping it would rise further but it ends up falling. Or they might also instantly sell off everything to secure their profits, but the prices end up skyrocketing further.

To avoid these scenarios, you should decide on your selling strategy early on. The strategy you can consider is gradual selling. This refers to selling portions of your investment at different price targets.

✕ Tied Up Funds

Since this is a long-term strategy, it means that your funds would be tied up for a long time. This may result in missing other investment opportunities.

To mitigate this, you can put your crypto in a crypto interest account. These platforms allow HODLers to earn interest while holding their bitcoin or crypto. You can consider placing your cryptocurrency with Hodlnaut. They offer a high interest rate of up to 7.25% on your crypto with no lock-in periods or minimum deposit.

What is Trading?

Trading is an active investment strategy

Trading is an active investment strategy, where you must pay attention to the charts and spend time doing research frequently. It involves the buying and selling of crypto at various time ranges which can even include minutes or hours. The potential of high percentage gains tends to draw people to trading despite the higher risk involved.

If you intend to trade, it would be great to have some understanding of the crypto industry and how different news can affect the pricing of Bitcoin. Remember to protect your trade by setting stop loss and taking profit positions.

Advantages of Trading

✓ Potential big gains

You can observe and analyze the market and trade when the chart looks like it is going to run. It is not uncommon to see a coin skyrocket up by 30% in a single day. If you have great analytical skills, you can capitalize on market trends to try and yield great profit. 

✓ Be your own boss

Some people trade as a full-time job. You can set your own hours and workload to do day trading. Once you have attained your targeted earnings for the day or week, you can rest till your next working day.

Disadvantages of Trading

✕ Requires understanding of fundamentals and technical analysis

To prevent losses, traders would need to learn how to do fundamental and technical analysis of charts. This involves serious work and learning before you start. 

✕ Requires ability to manage emotions

The prices of crypto can fluctuate very quickly which makes this much riskier than long-term hodling. You must be willing to sell off a losing crypto when it is dumping or continue hodling for it to rise back up even with a 50% loss. Anything can happen in this volatile market and you need to make rational decisions without your emotions in play.  

In Conclusion

If you do not have much experience in crypto, you should proceed with investing cautiously. There is no right answer to which method is better or superior. You could always mix and match both strategies to fit your portfolio. No matter what strategy you decide on, always remember to do your due diligence before making any moves and diversify yourself to mitigate risk.

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