5 Reasons Trading Is Always Better Than a HODL Strategy

viperblckz (57)in #bitcoin • 5 years ago

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What’s up everyone? So I have a topic today that’s probably going to turn a few heads, a few people might get mad at this. But I want to talk about something in the crypto community that I’ve seen over and over again for the past couple years. And it’s something we need to address. And its this whole concept of HODL.

If you’re not that into crypto might not have heard the term before, basically the idea of HODL is that we believe in the technology and we buy into whatever crypto it may be (bitcoin is what I’ll refer to in this article).

Ands basically the idea is that its going to go big and it will be adopted so you should just hold on because eventually it’s going to come back. I believe in crypto, im highly invested in crypto, iots what i do for a living and i just have to say this is a very unhealthy approach to investing. I think that in the 2017 bull run alot of people got excited because they saw things go up, they bought into thing they didn’t really understand; and the reality is if you’re going to be invested in a technology, yes you should believe in the technology, but the goal is to profit.

The reality is you’re buying these coins because you want to earn a profit. And quite simply, HODLing is the worst way to do that. So I’m just going to kind of talk about my big kind of five sticking points on why i think trading is a far more effective method of managing your crypto than HODLing.

Okay, so the first thing that I want to talk about, my kind of number one point, and it’s a very simple one to understand; is Crypto is an emerging asset class. Bitcoin has a use case at this point, you know it’s being used for transactions, but it’s still not fully adopted. Now the general crypto market saw a ton of, just massive amount of new projects influxing into the space.

Now in traditional markets you can take a look at a company, you can look at profits you can look at earnings. You know you can look and create a true valuation for a stock based off a revenue model and looking at the business as a whole.

In crypto right now there’s very few projects that have a true working revenue generation model. Now granted a lot of them, they may make it to that point where they have a working model, but the majority of the investments that were made over the last couple of years into crypto, those were projects that were still building, that did not have a use case yet, so one of the biggest things, is trying to set a fair value for a crypto and saying I’m going to hold to that point isn’t really a feasible method right now because that fair valuation is really impossible to peg until we have higher liquidity, until we have more adoption.

Alright, now my second point is getting to kind of the true monetary level. I’ve seen people with portfolios that have pulled back eighty, ninety percent. That is just absolutely insane to me and a lot of these people sat through it willingly. It’s not like they couldn’t have exited. So the thing for me is, i kind of consider it like the baseline most simple kind of enter into trading for somebody that has been a traditional HODLer, and that’s just a stop and reentry method. Its very very simple, but just setting a stop loss at even say five or ten percent of what your goal value for that coin is. If it goes and it hits that stop, you’re going to stop losing money and then you can simply wait until you hit that point where you feel its come back to its fair value and you can re-enter.

I’m not going to get into the ins and outs of entering and exiting that trade, it’s just a very basic explanation but its a simple way to avoid going down eighty percent, and going down five versus ten percent. Because really the goal here, is if you believe in the project, you want to accumulate the project, but you don’t want to take losses during that. You want to accumulate the coin with the goal that it will eventually go up, so why hold it while it goes down.

Okay, so my third point here is, really just the basic math of it. You know, my background is actually engineering before i got into crypto, you know that’s what i was doing. I’m a numbers guy, numbers are easy, they don’t lie. So just some perspective, if you’d gotten into bitcoin in early 2017 around two thousand dollars, and say you put ten in. You’ve got five bitcoin, right now if you are a HODLer you’d be sitting with five bitcoin still that’s worth twenty thousand dollars. You made ten grand, not bad. But if you took the trading approach, and you had gotten in at the same point, you have five bitcoin. Let’s say you didn’t even take an aggressive exit, let’s say you went to the top and you watched it fall down another four thousand dollars and you exited at 16k. There was well over a week of just absolute straight pull down and it was not a hard exit to see. That would sit you at about eighty thousand dollars. Which right now gives you the buying power for four times as much bitcoin as the HODLer.

Not much more to say than that, its very very simple to see the difference in trading and HODLing. But another one is just in terms of raw percentages. If you pull back by ten percent, recovering that is going to take an eleven percent run up. If you pull back by fifty percent it needs to be a one hundred percent run up. In our case, where bitcoin has pulled back almost ninety percent youre talking about having to go up nine hundred percent in order to recover your losses, not to make money, but to recover the money that you could’ve had. To me it’s just really a no brainer. You know, you may believe in it, but to exit and re enter when you can have a larger number of coins, it just makes sense.

Okay so, my fourth point kind of plays with my third point. I’m not going to get into the nitty gritty of it, this is just kind of for the average joe that’s been HODLing. But something traditional finance is this thing called the CALMAR ratio. And that is basically a look at your risk versus your reward. And what it is, is it’s basically your running profits over the year, and it’s set over your maximum drawdown. Now in traditional finance a one to two ratio is considered very good. Obviously if your top polint with those five bitcoin is one hundred thousand, and you’re now sitting down at twenty thousand. That’s an eighty percent pullback, that is a terrible ratio in terms of investments. You might see it as going up by ten thousand dollars but if you were investing in a hedge fund you would never ever look for a fund with that low of a ratio. But kind of playing with that I’m going to spin around here and just show you a very basic, very simple kind of visualization of why trading is so much more effective. So really this is just a very very simple visualization. This is the two thousand dollar entry that i was referring to before, and this is that ride up. So right up there to sixteen thousand dollars when we exit. And what i want top show is this is not an aggressive trading plan, you just exit here and you hold three long positions for very short periods and you can see here they’re very loose entries, they’re loose exits. And my reason for that is i want to show that it doesn’t take the most effective trading methods to do this. But in a simple three long positions there, at the end of the year; and sitting like a HODLer and have five bitcoin that are worth twenty thousand dollars. With these three positions, which once again are not the most effective positions, and very loose, you would end with about one hundred and forty thousand dollars. And the buying power of thirty four bitcoin.

The big thing with HODLers that they believe in the technology so they want to amass more of that coin. Now who is more ready for another bullrun, the HODLer with five bitcoin, or the trader that now has the power of thirty four bitcoin? They both started at the same input capital, it really just seems like a no brainer.

Okay, so before all the fanatical HODLers come for my head, I want you guys to understand I absolutely believe in crypto. I think this is the future of finance, of data collection, I think this is absolutely going to be a key technology in the future. But it’s important to remember that you can’t lose all of your assets simply because you believe in something. You can still believe in crypto and trade it, and be in and out. You don’t have to HODL. You know you can still effectively support a project and believe in it, but also take an actual adjusted look at your portfolio and help increase that rather than just sitting on it. I would love to hear in the comments what your thoughts are on HODLing versus trading.

I also shared this article on TRYBE

This is not financial advice. I don’t take into account of your personal investment objectives, specific investment goals, specific needs or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation. Any expression of opinion (which may be subject to change without notice) is personal to the author and the author makes no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied.