Trading cryptos with the buy-and-hold strategy

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Updated: 28 July 2020

The cryptocurrency market has seen one of the most remarkable growths in the industry since its origins. Nearly all online forex and CFD brokers include cryptocurrency trading options these days. As the most successful cryptocurrency to date, Bitcoin has seen up to several million percent in returns since 2010. A few other cryptocurrencies, along with Bitcoin, are known for having rewarded traders who bought the currency and did not sell it. This strategy, known as buy and hold, is a now a widely used trading strategy in the cryptocurrency market. Here is a look at why it is so popular.

Eliminating market noise

Shorter market time frames are usually filled with a lot of noise, or distractions. The buy-and-hold strategy eliminates up to 95% of this noise by riding longer-term bullish trends. This is largely because a longer time frame sees calmer price action than the volatile and unpredictable conditions of a shorter period. By working according to a long-term trend, traders can avoid much of the temporary volatility that is present in short periods of time.

Perfect timing is not essential

One of this strategy’s most appealing qualities is that traders do not have to focus on perfect timing on the market. This is ideal for traders who are aiming for longer-term trades, as the opportunity to enter the trade is more important than the timing of the market.

Lower transaction costs

An increased number of trades each week naturally accumulate higher transaction costs. Because traders using the buy-and-hold method are less likely to overtrade, they will eliminate an unnecessary buildup of fees. This is especially important because the transaction fees on cryptocurrency trading are often higher than those of other markets.

Less mental pressure

Shorter-term trading produces greater stress because it is fast-paced and usually ongoing. Because a buy-and-hold strategy spans over a longer amount of time, it places less pressure on the trader and can be less psychologically demanding.

Time efficient

The buy-and-hold strategy does not require daily market monitoring and analysis like short-term trading does. Because of this, these long-term traders can still make high profits while spending less time on the markets. These traders should still put in a fair amount of time and effort, but it remains less than that of short-term trading.

Valuable cryptocurrency options

The advice given to crypto traders is somewhat different compared to forex or CFD advice and requires a look into a completely different type of market. The more prominent cryptocurrencies are usually the best options, especially for new traders, but small cryptocurrencies can also prove profitable. The larger cryptocurrencies include Bitcoin, Ripple, Ethereum, Bitcoin Cash, Dash and Litecoin. These cryptos usually have a deeper liquidity, which is useful for avoiding slippage. Unlike newly established cryptocurrencies, these run a much lower risk of caving and losing their value to a detrimental extent, making them a safer bet.

Implementing the buy-and-hold strategy

Different methods appeal to different traders and are determined by personal goals or preferences. Some traders choose not to perform extensive data analysis and simply hold the cryptocurrency until they feel ready to sell. Others might use their skills in technical analysis to strategically enter trades. Here are some key tips for those looking to begin using the buy-and-hold method in their cryptocurrency trading:

  • Span technical analysis of charts over a larger time period
  • Avoid placing stop losses too close to a trade entry
  • Keep leverage to a minimum or don’t use it at all
  • Use pullbacks as an opportunity for better entry prices
  • Take advantage of calm and strong uptrend conditions
  • Monitor any fundamental factors that may potentially affect the future of your chosen cryptocurrency

Keep in mind that this is only one of many cryptocurrency strategies that can be used. Buy-and-hold can produce many potential benefits when used correctly and can be used along with other techniques to gain large profits over a long period of time.