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Cryptocurrency Investing Vs. Trading

We discuss the difference between investing and trading in cryptocurrency. Investing and trading cryptocurrency are two very different things. Each requires a different mindset and set of tactics.

Investing in Cryptocurrency: Aiming to create a long term position in digital assets based on fundamentals and long term trends. Attempting to create a position with a lower price than the price you will eventually sell at down the road, if you plan to sell at all. Lots of room to mistime buys. Very little selling (although one may hedge to help manage their position, for example by trading some, selling some high and rebuying, or by holding a short position against a larger long position). You HODL through the downturns if needed, just as you also HODL through the upturns (because the goal is to be in for the long haul; so you suss out temporary price fluctuations, even when they are big). One might add to a position when they feel a crypto is oversold, or they may simply gradually add to a position over time regardless of the price. The CEO of a fortune 500 doesn’t sell all their stock when the stock sees a correction or the company has a bad quarter, they are invested in the company. The asset is the first thought, short term price trends are a distant second. The goal is in many ways to get more coins.

Trading Cryptocurrency: Aiming for short term profit based on technicals and short term trends. Attempting to buy low and sell high in the short term. You would be willing to take losses and set stops (you often end up buying high and selling a bit lower when trends turn against you). You would buy in high to follow a trend and then get out if needed. In fact, the current price alone means very little, what you care about is the potential for percentage gains. You are thinking about the setup and the room the price has to increase or decrease in the short term. You leave money on the table all the time, because your goal is profit, capital preservation, and capital growth. You may care about crypto, but the short term price trends are what matters, and in fact caring about crypto too much is rather toxic for a crypto trader… because you can and will need to drop coins often. The short term price trends are the first through, the asset’s future and its fundamentals a distant second. The goal is to get more dollars.

In other words, investing is a long term thing that speaks to fundamentals and long term trends and isn’t that concerned with short term price trends, and trading is a short term thing that speaks to technicals and is concerned with short term price trends.

Anyone can pair investing and trading, but one should not confuse the two. The current cryptocurrency markets are traders markets, so those who seek to invest will do well to carefully build positions over time to avoid the fluctuations in prices.

Both investing and trading require patience and a control over ones emotions, and both can be difficult, however getting good at either can be rewarding.

If you aren’t sure if you want to be an investor or trader, go ahead and try both. One can always turn their mistimed short term plays into long term investments. Just keep in mind that trading is technically much more difficult, while investing in crypto can be emotionally difficult (as crypto can and will lose 25%, 50%, 80%, or even at times 90%+ of its value on paper).

TIP: Averaging and laddering are useful tactics for both long term investors and short term traders. Both investors and traders will do well to always keep cash on hand in crypto so they can capitalize on the expected volatility of the young market.

Earn $5 in bitcoin after your first trade on Coinbase.