Ever heard of the expression HODL? If you’re a trader in the financial markets or are thinking about becoming one, it’s a term you should know more about, especially if you are interested in cryptocurrencies.
Interestingly, HODL is not an acronym for some kind of wonky trading strategy. It began on an online crypto forum as a misspelling of “HOLD,” but has also come to stand for “Hold On for Dear Life.” And it refers to many traders’ tendency to buy crypto currencies and then won’t consider selling, either because they believe it has more room for growth or because they have to recover any loss in value. This article takes a look at some of the pluses and the minuses of the HODL philosophy.
The HODL philosophy has several advantages, most notably its simplicity. Because no action beyond the initial purchase is required, HODL can be appealing to less active investors who simply want their investment to appreciate over time, and don’t want to spend time actively managing their portfolios. Additionally, there have been many success stories with HODL, particularly in crypto where initial investors made massive profits simply by holding their investment for a long time. In an emerging market with rapidly growing appeal, HODL can seem like a sound strategy.
Two of the biggest HODL drawbacks involve its duration. Because HODL traders wait so long to sell, they often go through prolonged periods when the value of their investment ends up being less than what they paid. This can be especially true in crypto markets which may be highly volatile. Another major drawback is that by practicing HODL, your money is tied up in one investment and you may miss opportunities to capture gains when they occur. Basically, HODL limits your flexibility as a trader.
One way to increase your investment flexibility and your level of control is to use an automated trading strategy. Automated strategies make it possible for you to preselect the conditions you want to trade under. Things like “buy a cryptocurrency when the price dips below the moving 30-day average,” or “sell when the price of your cryptocurrency goes up 4%.”
When the conditions you set happen, your automated strategy sends the appropriate signal to a broker like Alpaca or Robinhood, triggering the trade with no additional input. Cool, huh? Rather than holding on for dear life and placing yourself at the mercy of a potentially volatile market, your automated strategy will take advantage of promising opportunities you’ve identified, protect you from excessive losses and free up cash for your other great trading ideas.
Interested? Join the automated trading revolution with QuantFu!