In most every cryptocurrency community there will be a huge number of people telling you that you should HODL your coins forever. While these community members are mostly well-intentioned, this may not always be the best advice for your situation.
In this article, we’re going to go over both strategies, the pros and cons of each, and hopefully, it will help you determine whether or not you should continue to hold your investment or know when it’s the right time to take profits. Either strategy is a fine way to trade, and honestly, you could even utilize both of them to secure your positions, and to build a winning cryptocurrency trading strategy for yourself.
HODLing is likely the most hands-off form of investing available, and in many cases, it’s how cryptocurrency millionaires got that way. These investors likely purchased a number of coins for a low price when there was no demand for them, and after holding for several years saw a great return on their investment.
While this strategy ultimately paid off for them, the truth is that their coin likely went through a number of highs and lows before arriving at this final price. If they would’ve taken advantage of these dips and rises, it’s possible that they could have added a substantial amount of new coins or tokens to their pot, while still taking profits.
However, if you’re more interested in passively investing, without much work involved on your part, then the HODLing method is likely the right choice for you. Investors in this category would do well to pick a solid project, lock it away in a safe wallet such as a hardware or paper wallet, and then not touch it for the next couple of years.
HODL investors should, however, make sure to keep tabs on their investment’s updates in the event that a coin or token swap is initiated. There’s typically only a limited time to participate in these events, and if you miss it your investment could become worthless. Reddit or Twitter is often the best place for investors to quickly glean this information from.
If your chosen asset is going through a rough patch, and you’ve already lost a significant portion of your gains, it’s typically unwise to dump your investment. Markets of all types trade in cycles and cryptocurrency is no exception. That means that if you were to dump an investment that was currently in a downward trend, it’s likely that you will miss the upside which will likely come back shortly.
Many impatient investors have fallen prey to this, and Reddit is full of remorseful sellers who got off the ride just before they could’ve made stellar profits. Chasing profits from pumping coins which you have no interest in is a fast way to lose money, and it should be avoided.
In order to judge whether or not you should sell, take a moment to evaluate your position. Do you need this money immediately? If so, you likely should not have invested it anyway, and if you don’t then after distancing yourself from the emotional loss, it might make more sense to hold on to your coins or tokens for a while longer.
It’s possible that in a few months time, you’ll be able to sell in a much better position than if you took the loss. Cryptocurrencies can be brutal, and in order to achieve gains, sometimes you just have to wait it out.
If most of your holdings are in this currency, and you feel that you are too focused on one area for your portfolio to be safe, then it might be a good idea to diversify a little bit when you’re close to the break-even point. However, this would be a decision that you’d need to judge for yourself, and you should consider the potential gains that you may miss if you sell before profit realization takes place.
On the other side of the coin, if your asset is experiencing a sharp downturn, and you truly believe in the project it might be time to buy more! Many investors in different markets utilize this strategy to lower the average cost of their asset, and if you feel that what you’ve invested in has a real future, then it can be a good move to increase your holdings.
Trading on dips is how many crypto investors end up adding additional bulk to their portfolios. The safest way to do this, of course, is by trading an asset that you plan to hold for a long time. If the price of a particular asset rises a great deal in a short amount of time, investors can then sell that asset to take profits.
Once the excitement dies down and it returns to a lower price point, they buy back in, gaining more coins or tokens in the process. This strategy can make some inexperienced investors nervous, and if your timing is wrong, then you could miss out on some potential gains if you don’t buy back in before it rises again.
You can mitigate these risks by only dip trading with a percentage of your holdings. The exact percentage will likely depend on a few factors such as the total number of coins you hold and the liquidity of the exchange. Flipping smaller amounts of cryptocurrency is, of course, faster than flipping larger bags, if the asset in question isn’t super high in trading volume, moving a lot of them can be difficult.
However, this strategy can be particularly effective for assets in this class, as it’s easy for a coin in the 5 cent or less range to move up or down by a penny or two in a day, creating a stellar opportunity for you to add more coins to your bag if you’re patient.
The key rules for this strategy are to not over trade and to never bet the farm on one transaction. If you’ve already made one successful swap, then it’s best to call it a day and wait for the next wave.
Likewise, you should only bet a small percentage of your holdings on one trade. That percentage will be up to you, but many people would use 20% as a rule of thumb for safety. The larger your holdings, the more careful you should be.
If a cryptocurrency that you hold has experienced a sharp increase in a short amount of time, it’s likely a good time to sell it to capture some profits. A very large increase in price is likely a short-term gain, and it may not be sustainable.
If that price increase has no demand to hold it up, then a smart investor will likely sell at least part of their bag in order to buy back in at a lower price. Using a strategy such as this, you could likely double the amount of coins that you hold, increasing your portfolio position dramatically when the asset does reach your target selling price.
If you’ve only invested in one or two different projects, then this could also be a prime time to diversify your portfolio. By selling and buying back in, you have the possibility to regain your original investment, plus a new position in a different project.
By diversifying, you protect yourself from the downfall of one asset and spread your risk across additional currencies, hopefully in alternate sectors and markets. You could also stash some money into a higher cap coin that while not having the same ability to increase in market cap, would also have a greater ability to protect your capital in the event of a crash.
In closing, both of these strategies can work perfectly well, even for inexperienced or casual traders. If you do have an interested in dip trading, you should take a while to familiarize yourself with the cycles that your asset typically goes through.
If you take a look at the long-term price chart for a cryptocurrency, you may be able to establish a fairly routine pattern of it trading up and down. This is by no means foolproof, but it could give you a decent estimation of when to buy and when to sell in order to increase your position.
New crypto investors should keep in mind that investing is a long game and that by learning to make smart investment choices, they can establish a portfolio that will treat them well for a lifetime. Most large financial gains are not made overnight, but if you have the patience to see it through, your chosen project could treat you very well in the coming years.
If you do wish to experiment with some more risky investment methods, remember to never use your entire portfolio for it. Instead, dedicate a small percentage to riskier endeavors for your safety. This will give you a good mix of high reward and low-risk investment options that will offer you something to fall back on if it doesn’t work out.