How HODLing is losing you money

How HODLing is losing you money

By ScreenTag | The Other Side | 6 Sep 2020


Many cryptocurrency investors are in love with buying an asset and holding it until who knows when. Buy and forget has never been an investment strategy anyway. It was what your grandma or grandpa would have done who knew nothing about investments. We have already introduced a booletproof investment strategy in this post. The strategy is quite simple to follow and only needs the investor to be disciplined.

Why this strategy works

There are two principles any investor should have in mind: a. you never know when an upward trend ends and a downward one starts, and b. you never know when a downward trend ends and an upward one starts. Even technical analysis only offers indications, not actionable predictions.

This strategy builds exactly on those two principles. It forces the investor to withdraw some of the unrealized profits by selling units, and to grab the opportunity of discounted valuation compared to the original investment price per unit, buy buying the (relative) dips.

This leads to lower profitability, in one hand (often, realized though - as if the original investment has paid on itself), but on the other hand it's on the safer side, as it makes the original investment less expensive.

Although we knew this strategy to work theoretically, we decided to test it with two popular crypto assets: Ethereum and Basic Attention Token (BAT). The two assets have different volatility levels and currently offer very different ROI. The test starts with a $100 investment on January 1st, 2020 on both assets, and we compared ROI. Trading strategy is at +/-15% in asset valuation (balanced).

Ethereum

16a522ed2c495dc1044ea4997cf29f7e6687cea1eef653f21fb614b378a01177.png

As expected, HODL strategy worked up to the point on the first instance the market turned downwards. Since then, for the most part, HODLing Ethereum was under-performing compared to light trading, up to the point ETH price climbed to $387.40. At its best the ROI difference was 24.7%, but with the current downward trend, light trading is again performing better.

BAT

5b289212956c361869867c3e388492966a1ac47bca57020a28e39d4a710160a4.png

Where performance in ROI is seen better, is with less volatile assets. BAT is a great example. Light trading has been performing better almost since the third trade (note that ROI for the first trade after the original investment is identical), and the price volatility didn't allow HODLing strategy ROI to catch-up. Currently ROI difference among the two strategies is at 29.9%.

Trading strategy variations

As already mentioned, the above charts show balanced trading at +/-15%. You may modify the strategy to be more aggressive, by being more sensitive to bear market fluctuations (e.g. +20%/-10%), or more defensive, by being more sensitive to bull market fluctuations (e.g. +10%/-20%). The point in this strategy is to follow the limits, no matter what the market conditions are, and not to change the limits in response to market conditions.

An additional benefit of this strategy is that you always have available funds to finance future purchases, or take advantage of extreme downward fluctuations.


ScreenTag
ScreenTag

We created the most rewarding, transparent, and fair referral program. Join at https://www.screentag.mobi/affiliates


The Other Side
The Other Side

Contrary to the popular perception, things are not always the way people see. Our journey in the crypto-world has revealed quite a few dark sides, that need to be uncovered.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.