We have been hearing about the HODL approach or strategy in crypto which means they actually hold on to their coins for as long as they could. So, is this a good strategy to begin with? It may depend on what kind of trader or investor you are along with other factors.
What is HODL?
HODL is a common lingo in the crypto space that refers to an approach where investors decide not to sell their crypto coins even with a spree of the crypto market. Simply put, it means securing your cryptocurrencies for the long-term – hodling.
An investor who buys and stores their digital assets can be referred to as HODlers. They remain loyal until the end, and they cannot be influenced by any price fluctuations, false stories, or ironic memes.
Investors intentionally decide not to sell their coins even when the coins are in demand in the market. They keep holding while disregarding the pessimists and exaggerated price predictions. In doing this, hodlers offset two popular harmful prejudices:
- FOMO (fear of missing out) influences traders to buy high.
- FUD (fear, uncertainty, and doubt) can result in panic-selling (SODLing).
Origin of HODL in Crypto
The word Hodl originated from a bitcoin forum called Bitcointalk in 2013. A form member called GameKyuubi got intoxicated with whiskey and ended up posting a typo message on the forum.
His post stated, “I AM HODLING” instead of “I AM HOLDING” while responding to traders referring to him as a “bad trader” because he chose not to sell his coins during the recent spree at bitcoin prices.
However, that did not stop him from hodling despite the banter. And that’s how the term hodling was born and became popular among crypto community members.
HODLing – Best for Newbies?
In this digital money era, there are a variety of trading strategies that people can use. Unlike day trading, hodling does not require full-time dedication. It might be the best strategy for new traders in the cryptocurrency market. As an alternative for speculating on short-term price fluctuations, a trader can buy cryptocurrencies, like bitcoin, with the optimism that the price will hike in the long run.
Hodling strategy demands an abundance of emotional fortitude. The volatile nature of the crypto market makes hodling a risky strategy. The intense price swings are the reason why the majority of hodlers experience psychological pressure.
Additionally, as you grow accustomed to the cryptocurrency market and communities, you will probably come across the term ‘weak hands.’ It is used to describe beginners who, instead of hodling their coins, grow nervous and panic-sell their crypto holdings due to price swings and negative news that would not worry staunch hodlers.
Seasoned traders might advise you that hodling strategy may not be the most profitable compared to other techniques. However, the truth is that any strategy, if not executed properly, might turn out even worse.
The main advantage of the hodling strategy is its simplicity. It is the most hands-off crypto trading strategy in the market. The only ability you have to nurture is patience and having the emotional robustness not to panic sell. Short-term traders such as day traders and scalpers must be all hands on deck, keeping an eye on price movements and carrying out multiple activities.
Hodling trading strategy is the perfect fit for new investors venturing into cryptocurrency for the first time. As explained earlier, comparing it to a strategy like a day trading is sophisticated since the prices are based on short-term swings. Hodling is much easier to learn and does not demand a lot of commitment than day trading, which is time-consuming and involves many technicalities.
Another benefit of the hodling strategy is that it does not require significant initial capital. A holder can choose to invest a small amount of money and keep adding to the stockpile in batches. This strategy is flexible because you can buy amounts you are comfortable with. Hodlers don’t have to undergo the psychological pressure scalpers and day traders go through because of intraday price drops. Long-term cryptocurrency holders are not fazed by daily market volatility.
On the flip side, unlike day traders, hodlers do not fully capitalize on the massive volatility of cryptocurrencies like bitcoin. If executed perfectly, other strategies like day trading can generate much more earnings because they don’t depend on the appreciation of the coin in the future. Instead, they speculate on short-term price fluctuations by analyzing market charts and identifying profitable trading opportunities in the market.
The main downside of hodling strategy is the lack of full-scale market analysis. Due to this, a holder can quickly fail to identify negative market tendencies. Unexpected occurrences could crash market prices which might fail to recover to the initial levels. To avoid such situations, hodlers are advised to follow events in the cryptocurrency world once in a while.
HODL – Not Your Ordinary Typo
Hodling began because of a typo but ended up becoming a popular and essential trading strategy in the cryptocurrency market. This method might have a few drawbacks and, at some point, might not be practical but might end up successful in the long run.
Part of investing in the cryptocurrency market is identifying what works best for you. Be the one to regulate risks, and that involves determining the perfect time to exit the market. No expert can tell you with absolute certainty when to hold or when to sell your coins.
Nevertheless, it is a great idea to closely listen and apply tips and advice given by seasoned cryptocurrency traders with a wealth of experience in analyzing the markets.