Crypto Daily Trading Vs HODL: Full Guide
There are tons of ways to trade and millions of available options on the market to beginner traders and investors, so starting out can feel daunting.
This article is meant to do exactly otherwise: to ease you into the basics of trading, and to help you understand some of the common trading strategies and terms you are bound to come across on the crypto market.
There are generally three popular ways of trading crypto, which are Day trading, Hodling, and Swing Trading. While we will be focusing our attention on the first two, there are of course a hundred more methods of trading. But most times these two terms are enough of an umbrella for all possible categories.
What Does Hodling Mean?
Hodling seems like a misspelling, and for an enthusiastic beginner it is a term we might be eager to correct. Shouldn’t it be spelt “holding”?
In 2021, Hodl is not a misspelling any more; it is as intentional as the act itself. And as far as cryptocurrency transactions go, there might be no exercise as intentional as hodling.
To HODL means to Hold On to your Dear Life. Not that it meant anything eight years ago when the term first appeared in the cryptocurrency scene. As you might have guessed, it originated as a simple misspelling. An outburst, and a decision borne of frustration from the overwhelming crypto market.
“I am hodling,” a user, who had also admitted to being under the influence of alcohol, announced on the then popular BitcoinTalk Forum.
"WHY AM I HOLDING?” the user, GameKyuubi wrote. “I'LL TELL YOU WHY. It's because I'm a bad trader and I KNOW I'M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks, sure no problem bro!"
And this is how the term “HODL” was born, a less complicated way for beginner traders to invest in a market that could be overwhelming. Since GameKyuubi’s post, the term has been picked up by the cryptocurrency community and has become very popular. Whenever a person mentions that they want to Hodl, it means that they believe in their coin and it will bring then profit, if not soon, then after a while.
Therefore to HODL a asset simply means to hold on to one’s investments, to hold on, to wait, no matter how long it might seem before a healthy percentage profit is achieved. Take, for example, a Bitcoin devotee known as Tom. Tom bought 0.11 Bitcoins for $726 in November 2017, during the early peak of the 2017 bull run, when 1 BTC was about $6,589. Since then Bitcoin has risen by more than 800%, recording an all time high of $63,000 in May. But it hasn’t been a straightforward journey. After Tom bought his BTC, the price of BTC has risen to heights of $18,000 in late 2017 and fallen to $3000 the next year.
Why Crypto Traders Hodl
Hodling is perhaps the most uncomplicated investment strategy an investor could execute, and has remained a personal favorite for many beginner traders.
Popular meme phrase among beginning traders. Image source: Investy.
There are a lot of reasons that make traders decide to hodl. Apart from the simplicity that comes with it, HODLing crypto can bring huge profits, especially for investors who acquire crypto assets earlier and cheaper than everyone else. Investors who get in early on the bullish train, even right when the asset was in its bear, benefit the most from this strategy once a bull run finally does arrive.
The process of HODLing also saves nerves and prevents panic. There is no need to waste time and worry on daily trades, or constantly monitor exchange rates and cryptocurrency news. Although the periodic falls in the cryptocurrency market can make hodlers worry, or even push them to sell their investments too early when a bull is still possible.
Another major reason why hodling makes much sense is the fact that many cryptocurrencies, including Bitcoin, are quite deflationary. This means the number of issued tokens for most cryptocurrencies are limited. Bitcoin, for example, is known to have a possible 21 million tokens in circulation. Scarcity often means demand, and demand, as everyone knows, often sparks a spike in price.
As straightforward as hodling might appear, it requires strategies and special methods of its own.
Often investors have to be conscious of the growing public demand of the token they plan to purchase and hodl. With more than a thousand varieties of crypto tokens available on the market and on exchanges like ChangeNOW, an investor that plans to hold a specific crypto token for an amount of time would have to do their own research and be convinced of the coin’s project or potential.
Hodling investors would also have to possess the knack of knowing when to sell part or all of their stash, and knowing when not to. This is where it gets particularly difficult, and why traditional investors sometimes laugh at the insanity of holding on to a token despite a massive loss in portfolio.
Hodlers often have to hold on during 25-80% corrections, a staggering decline that is not uncommon in the cryptocurrency space. They are also likely to hold on too long to a token in hopes of long-term appreciation during a bull, when in reality they should have sold.
- To avoid losses possible with hodling longer than necessary, hodlers might sell a percentage of their holdings every bull run, buying them back during dips, to keep a balance check on their portfolio. This technique is called the “Rebalancing Method”, and helps reduce the risks associated with hodling, especially if one would be holding on to their crypto for a long time.
Day trading is one of the most popular ways to make money with your cryptocurrency.
Unlike with hodling, you don’t have to wait a number of months or years to make your profits. A day trader could begin to make gains of more than 4% within the first ten minutes of pushing the purchase button. This makes Day Trading way more sophisticated than HODLing, and invariably more technical. Successful application of strategies, understanding the nuances of digital assets and skillful handling of the tools available on the market allow traders to use this approach to quickly make a profit.
What exactly is crypto day trading?
Crypto Day Trading is an approach to trading that involves opening short-term positions in the market in order to quickly make a profit. The essence of this scheme is clear from the name – the investor's task is to find and use the maximum opportunities available during the day to make money on the difference in the rate of digital assets.
How do you day trade? If you are going to trade successfully on any desired market, you will need large pools of supply and demand, which is exactly what popular crypto exchanges like ChangeNOW offer. The ChangeNOW exchange provides you the chance of either owning a particular currency or speculating using its brokering services.
With more than 200 crypto tokens available for trade on the ChangeNOW platform, you can begin your trade with popular coins like Bitcoin or Ethereum, or even with mid-tier altcoins, which could also be great options for day trades.
Popular Crypto Day Trading Strategies
There are different approaches to day trading on the crypto market. An important detail to note is that there would be no effective day trade without a strategy. We will consider the three most popular general approaches to day trades.
Cryptocurrency trading on the news
The meaning of the strategy is quite straightforward — to buy on positive news and sell if there are negative publications. Consider an example and a supposed train of thought for a trader who makes money on cryptocurrency day trading:
- On February 8, 2021, a Bitcoin devotee named John stumbles upon the news on ChangeNOW’s blog or elsewhere that Tesla, the automobile company of popular American investor, Elon Musk, has invested $ 1.5 billion in BTC.
- Before reading this news on ChangeNOW, John had repeatedly read publications where authors talked about the serious impact of Elon Musk's actions on the digital asset market. In addition, John remembers that Tesla is one of the largest companies in terms of capitalization, having recently entered the “blue-chip club”. This means that the whole world is closely following the actions of its representatives.
- Tesla's investment in Bitcoin therefore is a reflection of the confidence of the company's representatives in the prospects for further cryptocurrency growth. In other words, a large company with a large followers base has publicly endorsed the coin.
The combination of these factors suggests that after Tesla, many investors would start buying Bitcoin. After assessing the situation, John moves to buy 0.5 BTC following the news release. On the day of Tesla’s purchase, BTC grew by almost 20% (from $39,036 to $ 46,694). Thus, in just a day, John would have made almost $4,000 in profit.
Bitcoin Price Spike on February 8th. Image Source: Coindesk.
This only exemplifies how daily current events can impact the cryptocurrency market.
Day trading cryptocurrencies based on signals involves working with charts and trading indicators. With the aid of indicators, you can make a personal technical analysis of the cryptocurrency to guide you in your decisions.
A simple example of using indicators to trade is, say:
- On the morning of March 23rd, John discovered that on the BTC chart, the price was moving along a trajectory similar to the common "double bottom" technical analysis pattern. The second touch of the "bottom", according to the popular theory, can cause a spike in the prices of Bitcoin. Suggestions that Bitcoin may demonstrate positive dynamics are also reinforced by other technical details like the Alligator indicator.
- John moves to buy 0.5 BTC this time, as the chart bottoms.
- In just six hours, Bitcoin grew from $ 53,654 to $ 56,742 (over 5% growth). If John moves to buy 0.5 BTC this time, as the chart bottoms, by the end of the day, John would have made a $2000 profit.
Bitcoin Chart, Double Bottom, March 23rd, 2021. Image source: Trading view
Cross-platform cryptocurrency trading
Cryptocurrency prices vary depending on the exchanges. At each site, the value of an asset is formed on the basis of supply and demand indicators. As a result, there is a difference in prices between exchanges. This feature can be used even during daily crypto trades.
- John has an account on a crypto exchange, ExchangeX.
- On ExchangeX on the morning of March 23, Bitcoin traded at $ 55,000 . At the same time, the cryptocurrency rate on ChangeNOW, at the moment, dropped to $ 54,400.
John had a deposit on ExchangeX in advance. Seeing the difference in the exchange rate, he sold 1 BTC on Exchange X for $55, 000, and then bought 1 BTC on ChangeNOW for $54,400.
Thus, the trader was able to make money on the difference in the Bitcoin rate between the exchanges.
Day trading eliminates the need for patience as is required in HODLing practices, and makes it possible to earn good profits within minutes. While day trading can be a good way to earn quickly, it can also be an efficient way to lose money quite rapidly, too.
This is why it is important to possess adequate technical knowledge and analytical skills required to trade daily. When one recognises the rigor and experience associated with making daily trades, then one might understand GameKyuubi’s frustration and why the “HODL” term was birthed in the first place.
If there was a golden rule to any investment or trade, it would be the maxim: “Never Put All Your Eggs in One Basket.”
The same applies to investing and trading cryptocurrencies. The diversification of a portfolio is an investment technique that simply implies that you compose your portfolio of different types of assets with the main aim of reducing your overall risk.
It is always mathematically wise to spread investments across a variety of tokens rather than going heavily on one crypto token. Suppose we invest all of our funds in a single altcoin, say in a newer coin or a high-risk token, it is possible that in an unfavorable situation or unrecoverable dip, we could lose most of our money, or a good part of it.
This is why investors try to protect themselves against this type of risk by widening the range of tokens and assets in which they can deposit their money. Portfolio diversification is a strategy used by both short-positioning traders, and long-positioning investors, and thus is useful in short-term trading, as well as HODLing practices.
How Do You Diversify Your Portfolio?
One of the best ways to diversify a portfolio is to have crypto tokens with varying degrees of liquidity, risk, complexity, and varied duration. This way we make sure that if one of our options falls, it can be compensated by investments in other areas.
To diversify your portfolio, you’d have to study the crypto market, and decide on the tokens you wish to allocate your budget to. It is generally wise to allocate a larger percentage of our budget to tokens we consider “Low-risk” and “safe”. For crypto assets we do not trust as much, or consider “High-risk”, we invest smaller percentages of the budget.
How to get started?
On ChangeNOW, there are more than 250 crypto coins to choose from. From popular options like Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Dogecoin (DOGE), and Cardano (ADA), to more recent options like Chiliz (CHZ), Algorand (ALGO), Shiba Inu (SHIB), and Internet Computer (ICP).
Disclaimer: This article is no no way an investment advice and is strictly for educational purposes only.