The cryptocurrency market is constantly evolving, both in terms of its diversification and the sheer number of tokens available to investors. There are now more than 1,658 cryptocurrencies in existence, for example, while the emergence of price-stable tokens has also enabled investors to build a comprehensive and diverse portfolio.
At the same time, experts have developed variable methods of trading online and investing in cryptocurrency. These methods enable individuals to adopt short and long-term outlooks in the marketplace, in order to best achieve their objectives and respect their unique risk profile.
But how are these strategies defined, and which one is right for you? Let’s consider the following:
What is HODL?
We start with the term HODL, which is used to describe a passive investment strategy with a long-term outlook. This is short for hodling, while it represents a deliberate misspelling of the world ‘hold’.
This name reflects the core nature of the strategy, which requires players to “hold on for dear life” during cryptocurrency’s notorious peaks and troughs. It’s based on the principle that the majority of financial assets and instruments tend to see their values appreciate over a concerted period of time, while it demands that investors display a strong sense of determinism.
This ensures that individuals are able to invest in one-off sums of Bitcoin or similar token variations and make a long-term commitment without being swayed by the volatile price shifts that define the cryptocurrency market.
This is considered to be the easiest and lowest maintenance form of cryptocurrency investment, although it requires considerable strength of mind to hold your position in an often chaotic market. The success of this strategy also requires you to appraise the risk profile of each individual token, before determining which options are likely to appreciate in value over time.
What is Cryptocurrency Trading?
Conversely, crypto trading is a short-term investment method that requires you to hold your selection of assets for anything between minutes and months. This represents an extremely active method of investment and one that looks to leverage the volatility in the market rather than looking to negate it.
The principles of trading are diametrically opposed to those of hodling, while those who practice it must boast considerable knowledge and willingness to invest time in managing their portfolio.
A unique risk-reward ratio is central to the appeal of cryptocurrency trading, as its primary advantage is the potential for high potential and margin-based gains. Conversely, investors can incur significant losses in the event of sudden and unexpected price shifts, rendering even theoretically sound strategies ineffective.
Once again, you’ll need to identify the individual tokens that are most suited to cryptocurrency trading, prioritizing those that have short and medium-term potential. You’ll also need to establish clearly defined conditions for pulling out of trades and closing positions, with stop losses available to help you manage your risks.
You may also want to set daily, weekly or monthly targets depending on the precise trading strategy as this may help you keep track even in a fast-changing marketplace.
The Last Word – Which Option is Right for you?
These methods sit at opposite ends of the investment spectrum, and your choice will depend on your philosophy, risk appetite and unique set of goals.
In general terms, hodling is ideal for relatively inexperienced or risk-averse investors with a desire to accrue passive returns. It may also suit individuals who lack confidence in their ability to perform technical analysis and execute quick decisions.
Conversely, trading suits more seasoned and experienced investors, who are proficient enough to recognise market trends and leverage volatility. It will also appeal to investors with a healthy appetite for risk and a penchant for chasing significant gains.
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