This is a series of guides for crypto newbies, with a focus on investing in Australia, although a lot of the advice will be suitable for a global audience. This is a guide from the point of view of people new to the space, without in depth knowledge of blockchain, defi etc.. and so will seem very basic to seasoned crypto investors but there seems to be little simple information available to those just starting out.
Part 4 : Holding Vs Day Trading
There are various strategies for making money with crypto, however for beginners there are three main broad categories:
- Holding Long Term
- Short Term or Day Trading
- Staking / Delegating
Holding Long Term
This is where you invest in a coin with the intention of keeping for months, or in most cases years, with a view to the value increasing in this time. There are several advantages to this method, its not ruled by emotion (set and forget), you are more likely to have gains over a significant periods as most cycles of gains and losses are over a few years, so if you can ride out any low periods (bear markets) you will likely be better off long term, assuming the project doesn’t completely die. If you invest in larger market cap coins like BTC or ETH, this is obviously very unlikely. Smaller projects may give greater gains but come with bigger risks. You can invest a lump sum, or gradually feed your cash in, this is known as ‘dollar cost averaging’ (DCA) and aims to avoid having to try and time the ‘dip’ and just puts in a set amount at a set frequency regardless of current price. Over a long period of time this generally has a higher return than trying to time the market, if there is an obvious dip you can always add a little extra spare cash if you have any. In Australia, if you hold for more than 12 months, you’ll get a 50% capital gains tax (CGT) discount when you sell.
Short Term or Day Trading
With this method you are trying to buy low and sell high, there is great potential for day trading with the huge volatility of crypto, however that also means there is a big risk of getting it wrong if you aren’t prepared to change your plans, or if you need the money. You need to be monitoring prices very closely, have a set strategy so you aren’t trading with emotion and potentially use an exchange that allows market orders to sell automatically at a set % gain and stop losses to sell at a set % loss. Most people will lose money when trying to day trade crypto because of its unpredictable nature.
An example: I have several coins I have invested in with long term in mind, as I have faith in the fundamentals of the projects. However, I also decided to buy some DOGE as a bit of a joke, and it was only $50 so even if it went to nothing it was no great loss. When I bought (only a couple of months ago) it was around $0.07 AUD and when it grew from $50 to $70 I sold, as I thought it was a short term pump and was likely to drop back down possibly even below where I bought and I’d buy back it at a lower price. As we now know it continued to pump and my $50 would have been worth around $300 at the peak. It was only very small amounts, but it was a cheap lesson in holding, when you are not an experienced trader and not to try and time the market.
Staking or Delegating
This is really complementary to holding, as with many coins you can effectively use them to earn more with interest. Some wallets and exchanges allow you to do this, and returns will vary depending on the coin and wallet or exchange. There may be some risk, again depending on the exact situation, but especially on larger holdings this can be a significant source of income on some coins.
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