Trading Strategies: Trading vs Holding

For almost all people involved with crypto, the sole aim of investing is to score a significant profit, otherwise unachievable through standard investment options. Earning capital gains at a high ROI comes with certain risks, which is why cryptocurrency traders utilize a wide range of strategies, based on their personal expertise and beliefs. Most commonly, digital asset investors are categorized as either ‘traders’ or ‘holders’. In this article, we will take a look at the distinction between these two terms and find out which approach might better suit your financial goals.

Traders vs. Holders – What is the difference?

The main thing that differentiates ‘traders’ and ‘holders’ is that traders focus on short-term profits, while holders are interested in more solid long-term opportunities.

To better facilitate these ideas, let’s imagine an exemplary scenario where a new coin will be listed on a major exchange (such as Binance) in two weeks. A trader will buy the said coin in advance and wait for it to be officially listed in the hopes of packing a profit of 15-20% from the temporary spike in price. A holder will evaluate whether the blockchain technology behind the coin will provide long-term value to the industry, and based on that, decide on whether to invest in the cryptocurrency.

As traders are constantly looking for opportunities to make quick profits, they will follow the latest news and try to predict which coins will experience significant rises in price, switching between them without doing any in-depth fundamental analyses. Holders, on the other hand, aim to find projects with huge scaling potential and sell only when they reach a profit that equals several times their initial investment.

Pros & Cons

While short-term investing can provide you with quick profits, you should be aware of the potential risks that come with it. Sometimes, the “hype” created around a new digital asset could be quite temporary. Even if the said cryptocurrency rises in value, your profits could diminish due to an unexpected market crash. On the other hand, if you do not properly evaluate the trading margins beforehand, you can sell your coins too early and miss out on a huge profit. Stress is one of the greatest disadvantages that come along with day trading and the lack of it is one of the primary advantages of holding (or ‘hodling’ as the crypto-community likes to say).

While holders do not burden themselves with the stress of day-trading activities, they must be extremely precise when deciding on which cryptocurrencies to invest in. Due to the fact that they do not take into consideration the market cycles, holders may miss a lot of exit opportunities along the way. If the project turns out to be a scam or completely fails, they can lose their whole investment.

Are you a ‘trader’ or a ‘holder’?

If you are planning to invest in cryptocurrencies, you should pick your trading strategy according to your personal set of skills and knowledge. Presuming that you are interested in immediate returns and believe that you can handle the stress that comes with trading in a versatile environment, focusing on short-term investment strategies might be the better choice for you. If you prefer to play it safe and invest your resources based on belief rather than instinct, then you might be more of a holder. While finding success with cryptocurrency investing requires you to rely on substantive analyses, reflecting some of your personal believes when deciding on trade is inevitable. This is why you should first try to understand your strong sides and use them in your trading activity.

Conclusion – Which is better?

Experts suggest that a combination of short-term and long-term investments could often be most suitable for starting traders. If you have a decent amount of money at your disposal, it might be a good idea to put some capital aside for a big project, which you believe will scale considerably in the future. The rest of the funds, you might consider allocating towards short-term opportunities with high ROI (Return on Investment) potential. To increase your returns, it is mandatory to first decide on how you are going to divide your resources between the investable projects and properly diversify the associated risks.

Nothing on this website should be perceived as financial, investment or trading advice. We urge you to do your own research prior to investing and we highly recommend that you consult a certified financial advisor.

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