Cryptocurrencies are fast emerging as an alternative asset class. The demographics of the individuals investing in cryptocurrencies is not just limited to High Networth Individuals (HNIs).
With the widespread availability of cryptocurrency trading and investing platforms, even the common man is trading or investing in cryptocurrencies.
What is the Difference Between Crypto Trading and Investing?
If you want to make money out of cryptocurrencies, you have 2 options. You can either opt for crypto trading or you can opt for crypto investing. We will today shed light on both of these alternatives to help you make an informed decision.
Difference between crypto trading and investing:
Cryptocurrency investors are individuals who study the fundamentals of the cryptocurrencies before investing. Their rationale behind investment decisions is always based on the fundamentals of the cryptocurrencies rather than the price movements of the cryptocurrencies. Moreover, they are willing to hold for years together in order to let the cryptocurrency appreciate.
On the other hand, when you are speaking about cryptocurrency traders, they often indulge in short-term trades in order to gain profits. They often take into account the various patterns on the technical charts as well as price movements before making the buying or selling decision. A cryptocurrency trading position can last anywhere from 1 day to 2 weeks.
Now that you are aware of the difference between cryptocurrency traders and investors, we will go into greater detail to help you understand the different traders and investors in the cryptocurrency world.
1) Intraday traders:
Intraday means “occurring within one day”. Intraday traders often close their positions within 24 hours of opening them. Since the cryptocurrency markets operate around the clock, any trade which gets closed to within 24 hours can be called an intraday trade. Intraday traders often use technical charts and analysis in order to initiate their positions. They hardly ever take the fundamental factors into account. They are just interested in predicting the asset price movement in the next 24 hours rather than looking at the longer term.
Advantages of intraday trading:
Some of the advantages of intraday trading include:
- Available leverage
- Concluding the trade within a short period of time
Disadvantages of intraday trading:
The disadvantages of intraday trading includes:
- High volatility
2) Swing traders:
Swing traders in cryptocurrencies utilize short-term trading methods rather than just intraday trading techniques. A swing trade can last anywhere from 2 days up to 2 weeks. Also, swing traders take into account 2 types of analysis which are:
- Fundamental analysis: Oftentimes, they just take into account the upcoming News or the news which has just been released in order to initiate the trades. Their fundamental analysis is not dependent on the long-term developments in the asset class.
- Technical breakouts: They often place their trades based on the technical breakouts or breakdowns. That is why they religiously follow the technical charts in order to initiate a trade. The trades can be based on various technical indicators on the technical charts like MACD, RSI, etc.
Unlike the intraday traders who solely rely on technical charts, the swing traders can use both the type of analysis in order to initiate their trades.
Advantages of swing trading:
The advantages of swing trading include:
- Less volatility
- Better probability of success
- Usage of 2 different analyses
Disadvantages of swing trading:
The disadvantages of swing trading include:
- Less leverage
3) Long Term Traders/Investors:
Long-term traders solely rely on the underlying fundamentals of the cryptocurrencies. Also, in all the cases, the long-term traders are willing to wait it out till the value of the cryptocurrency is unleashed. This means that they can easily invest for more than 3 years as well.
The advantage is that they will be able to experience compounded growth if their analysis is correct. Moreover, since they are not bothered by the day-to-day price movements, the volatility in the shorter term does not impact them at all. Long-term traders are also known as investors as they just believe in buying right and sitting tight.
Advantages of long-term trading:
The advantages of long-term trading include:
- Easy to initiate the trade
- Highest probability of success
- No impact by short-term volatility
Disadvantages of long-term trading:
The disadvantages of long-term trading include:
- No leverage
- Need to wait for a longer period of time
Which investment or trading style should you choose?
This brings us to the very important question, which investment or trading style should you choose. It all depends on what you are trying to achieve by investing in cryptocurrencies. If you are looking to just make a quick buck, you can opt for swing trading or intraday trading. However, you have to keep the risk in mind before initiating any of these trades.
On the other hand, if you truly want to create wealth for yourself, long-term investing is the perfect option for you. Even though this will require you to devote a significant amount of time to understand the fundamentals of the cryptocurrencies but in the longer term, it is well worth it.
However, you have to be sure that you are willing to wait it out. Only when that is the case, long-term investing is well worth it. You have to be completely patient and insulated to the shorter term price movements in order to make money with long-term investing.
Thus, when you are looking to invest in cryptocurrencies, these are the 3 options which you have.
You have to select the investment/trading style in accordance with your financial goal as well as comfort level.
Would you upvote this post and follow us because this will encourage us to write more articles like this one?
Crypto data & analytics powered by Machine Learning and Artificial Intelligence.
Nvest.ai is helping crypto traders and investors make better decisions with next generation tools and leading them to the next level.
Visit our website: http://nvest.ai