Crypto Strategy: Cryptocurrency Trading: Buy-and-Hold

Last Update: October 28th, 2024

No other asset class has seen the magnificent gains which were recently seen in cryptocurrencies. Bitcoin, the most prominent cryptocurrency, has returned a couple of million percent since 2010 when it was valued at $0.008 at one stage.

Bitcoin and a couple of other cryptocurrencies have handsomely rewarded investors who have bought and held them, making buy-and-hold one of the most popular crypto trading strategies.

Is buy-and-hold still a powerful trading strategy for cryptocurrencies? And which of the crypto’s are worth buying?

Introduction to Cryptocurrency Trading

Cryptocurrency trading is the act of buying and selling digital currencies with the aim of making a profit. This dynamic field requires a solid understanding of the crypto market, which is known for its high volatility and rapid price changes.

Successful trading involves employing various strategies to maximize returns and minimize risks.

Whether you’re a novice or an experienced trader, understanding the intricacies of trading cryptocurrencies is crucial for navigating this lucrative yet unpredictable market.

What is Trading in Crypto?

Trading in crypto refers to the process of buying and selling cryptocurrencies on online platforms known as exchanges. Traders use a variety of strategies to capitalize on market movements.

Day trading involves making multiple trades within a single day to profit from short-term price differences.

Swing trading, on the other hand, focuses on capturing gains over a few days or weeks.

Another popular strategy is dollar cost averaging, where traders invest a fixed amount at regular intervals, regardless of the price.

Popular exchanges for trading cryptocurrencies include Binance, Coinbase, and Kraken, each offering unique features and tools to assist traders in their endeavors.

Certain cryptocurrencies have recorded unheard-of gains.

The Advantages of Buy-and-Hold Cryptocurrency Trading

It Cuts Out 95% of the ‘Market Noise’ and Market Volatility

There are different buy-and-hold trading strategies (believe it, or not). The main idea behind these strategies, is to ride long-term bull trends and eliminate the market ‘noise’ associated with lower time frames.

Short-term traders often get frustrated when the market shakes them out of their trades as it whipsaws on the smaller time frames (for example, the one-hour timeframe).

The price action on a weekly chart is often non-volatile over a certain period of time.

When the same period is analyzed on smaller time frames, the picture is usually much more ragged and unpredictable than on the weekly time frame.

Perfect Market Timing is Not Necessary

What makes buy-and-hold trading attractive to many traders and investors, is that in many cases, timing the market perfectly isn’t extremely important.

For traders who plan to be in trades for months or even years, what matters most is to actually enter the trade.

These traders often don’t wait for major pullbacks against the prevailing bull trend because they know that it may cause them to miss the opportunity to get into the position they’re looking for.

Unlike intraday trading, where timing is crucial, buy-and-hold traders focus on long-term trends.

Trading cryptocurrencies with a buy-and-hold approach does not require perfect timing.

Reduced Transaction Costs

Traders who engage in long-term buy-and-hold trades usually don’t overtrade. This can reduce transaction costs significantly. A trader who is in and out of trades every day or every week needs to factor in the drawdown of accumulated transaction costs.

The spread on some cryptocurrencies is significantly higher than on the major currency pairs, for example. This can make it very expensive and ineffective to execute many short-term trades instead of a few long-term trades.

This is in contrast to day trading stocks, where frequent trades can accumulate significant transaction costs.

Reduced Psychological Strain

Short-term trading and even medium-term trading can be stressful for many traders. Many times markets can be hard to trade for a few weeks and during these times short- and medium-term trading can exhaust traders, especially those who are less experienced.

Although buy-and-hold cryptocurrency trading strategies have the potential to be stressful at times, it is definitely less taxing than the constant vigilance required by day traders.

Time Efficiency

Buy-and-hold cryptocurrency trading strategies are perfect for investors and traders looking to make potentially large gains with minimal time expenditure.

Long-term cryptocurrency investors who engage in buy-and-hold trades don’t need to keep a close eye on the price every day, nor do they need to do technical analysis and look at charts on a frequent basis.

It would be wise for these cryptocurrency traders/investors to stay on top of fundamental news, of course, and to check up on their positions now and then but it is still much less time consuming than short-term trading.

With buy-and-hold crypto trading, you don’t need to stare at charts all day long.

Understanding Market Volatility

Market volatility is a fundamental aspect of cryptocurrency trading. It refers to the rapid and often unpredictable changes in the prices of cryptocurrencies. This volatility can be both an opportunity and a risk for traders.

Understanding market volatility is essential for making informed trading decisions and developing strategies that can withstand the market’s ups and downs. By grasping the nature of volatility, traders can better anticipate market movements and adjust their strategies accordingly.

How Market Fluctuations Affect Crypto Trading

Market fluctuations can have a significant impact on crypto trading. A sudden spike in prices can lead to substantial profits, while a sharp decline can result in considerable losses.

To navigate these fluctuations, traders need to stay informed about market trends and employ strategies to manage risk. Experienced traders often use tools like stop-loss orders to limit potential losses and position sizing to control the amount of capital invested in each trade.

By being aware of market fluctuations and employing risk management techniques, traders can enhance their chances of success in the volatile crypto market.

Which Cryptocurrencies Are Worth Trading?

Although small cryptocurrencies shouldn’t necessarily be avoided, the most reliable cryptos are the largest, most established ones. This includes Bitcoin (BTC), ether (ETH), dash, litecoin (LTC), Bitcoin cash, and ripple (XRP).

Investors and traders have much more confidence in these (and other) large cryptocurrencies. This can help you when buying these cryptos for a long-term play.

For those looking for diversified exposure, exchange traded funds (ETFs) that include a collection of crypto assets can be a strategic option.

Find reliable cryptocurrency brokers here.

One of the advantages of trading large cryptocurrencies is that they offer deeper liquidity. Sufficient liquidity helps to avoid slippage when executing trades and filling orders (take profit and stop loss orders).

The big cryptocurrencies are also much less likely to ‘crash and burn’ than the smaller ones. There have been numerous cryptocurrencies that haven’t survived very long. Investing in a brand new cryptocurrency that hasn’t proved itself yet is like buying a day old chick – high growth potential, but risky.

The more established cryptocurrencies, including the ones mentioned above, are definitely worth taking a look at. Investors with a large appetite for risk may be interested in smaller, less known cryptocurrencies.

When investing in these, however, traders might want to use smaller stakes than on the bigger cryptocurrencies.

Ways to Enter Buy-and-Hold Cryptocurrency Trades

Many investors simply buy cryptocurrencies and hold them until they feel it’s a good time to sell. These investors often do little technical analysis before entering their trades and may in some cases prefer not to use stop loss orders.

In addition to buy-and-hold, traders can explore various crypto trading strategies to find the best fit for their investment goals.

Traders and investors with technical analysis skills may prefer to enter cryptocurrency trades after weak or substantial price retracements. Other participants like to enter the market on a break of resistance. This adds the benefit of momentum confirmation.

Alternative Trading Strategies

While the buy-and-hold strategy is popular among many crypto investors, there are several alternative trading strategies that can also be effective. These strategies cater to different trading styles and risk appetites, offering various ways to profit from the crypto market. Exploring these alternatives can provide traders with a broader toolkit to navigate the complexities of cryptocurrency trading.

Swing Trading: A Comparison to Buy-and-Hold

Swing trading is a strategy that involves holding onto a cryptocurrency for a shorter period, typically ranging from a few days to a week. Unlike the buy-and-hold approach, which focuses on long-term gains, swing trading aims to capitalize on short- to medium-term market movements.

This strategy requires active monitoring of market trends and technical analysis to make informed decisions.

While swing trading can potentially yield higher profits than buy-and-hold, it also comes with increased risk due to the need for frequent trading and the impact of market fluctuations.

Traders employing this strategy must be vigilant and use risk management tools like stop-loss orders to protect their investments.

Buy-and-Hold Tips for Trading Cryptocurrencies

• Use larger time frames for technical analysis, for example, daily, weekly, and monthly charts.
• If using stop losses, don’t place it too close to your entry.
• Leverage should be minimized or no leverage should be used. Holding leveraged cryptocurrency trades for months or years can be costly.
• If possible, take advantage of pullbacks to get a better entry price.
• If the uptrend is non-volatile and very strong, don’t wait for deep retracements. At-market entries may be considered in this instance as well as breakout entries.
• Keep an eye on fundamental factors that may influence the long-term outlook of the cryptocurrencies you’re trading.

Start trading cryptocurrencies now!

FAQs: Buy-and-Hold Strategy in Cryptocurrency Trading

1. What is a buy-and-hold strategy in crypto trading?
   • A buy-and-hold strategy involves purchasing cryptocurrencies and holding them over the long term, aiming to benefit from their potential growth rather than short-term price fluctuations.
2. Why is buy-and-hold popular in crypto trading?
   • Buy-and-hold minimizes trading stress, reduces transaction costs, and allows investors to avoid the market noise of daily price swings, focusing on long-term growth.
3. Does buy-and-hold require market timing?
   • No, perfect timing isn’t crucial. Long-term holders typically enter trades based on overall trends rather than precise entry points, as they focus on extended growth potential.
4. Which cryptocurrencies are best for buy-and-hold?
   • Large, established cryptocurrencies like Bitcoin, Ethereum, and Litecoin are preferred for their stability and deeper liquidity, reducing the risks associated with smaller, lesser-known coins.
5. What are the main advantages of a buy-and-hold approach?
   • Key advantages include reduced psychological strain, fewer transaction costs, and increased time efficiency, as buy-and-hold traders don’t need to monitor charts constantly.

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.