One of the misconceptions about investing in cryptocurrency is that you must always be in a position to buy and sell coins, based on their current prices. The concept of, “You didn’t sell when it was high so you lost money,” is not always the case. In investing, there are different types of traders, so it’s important to know which category you fall in, as well as knowing the differences between them.
We will keep it simple and discuss the three types of traders you will usually find in cryptocurrency. These are the three as defined by Investopedia.com
Day Trader: “A day trader engages in long and short trades in an attempt to profit by capitalizing on the intraday movements of a market’s price action resulting from temporary inefficiencies in the supply and demand of the moment. A day trader often closes out all trades before the market close and does not hold any open positions overnight.”
Swing Trader: “Swing trading attempts to capture gains in a stock (or any financial instrument) within an overnight hold to several weeks. Swing traders use technical analysis to look for stocks with short-term price momentum.”
Position Trader: “A position trader is a type of stock trader who holds a position for the long term (from months to years). Long-term traders are not concerned with short-term fluctuations because they believe that their long-term investment horizons will smooth these out.”
It’s important to know the types of traders there are and which one you fall into. Day and Swing trading often require the ability to do technical analysis and being versed with reading charts and determining the movement of pricing based on patterns, where a Position Trader can research their investment, determine that it is something that will grow long term, invest in it and not have to analyze the data and movement of pricing day to day.
For a lot of people investing in cryptocurrency, this could be their very first time using an exchange, purchasing a coin, and trying to figure out how the pricing and movement works. If you have limited knowledge and experience with doing technical analysis, constantly selling and buying could end up costing you a lot of money. For example:
John buys a coin for 500 sats. The price climbs to 800 sats and he feels this is a good time to sell as it will drop back down again and he can strengthen his position by buying more of this coin at a cheaper price with his profits. John is new to trading and does not know how to read charts or do any type of technical analysis, but he sells at 800 sats. Two weeks later and not only has the price not gone down, it has risen to 1100 sats, and if he were to buy back in, it would be at a loss. Had he held his position, he would still be up. Someone like John, who had invested in a good coin, would be better off as a Position Trader, until he becomes better at understanding price movement and patterns.
Not everyone has to be a day or swing trader. There is nothing wrong with doing research about a coin and its company, knowing that the investment now will pay huge dividends down the road and cashing out sometime at a later date. Yes, there are times that if you knew how to trade, you could have captured some profits and returned it back into your portfolio, but if you are not skilled in that field, more often than not you will end up on the losing side of that battle, both with less funds and tons of regret.