Digital currency or crypto trading is experiencing global adoption, and while digital assets have the potential to boost the economy of many countries, there are some risks involved that are impacting African traders, especially those who used to swear by long-term strategies such as HODLing.
HODL is derived from the misspelling of "hold," referring to a buy-and-hold strategy that is typically used with Bitcoin and other cryptocurrencies, but which can also be used when trading stocks.
HODL is also referred to as "Hold on for Dear Life,” which means that traders buy a cryptocurrency and hold onto it despite the volatility in the market and price fluctuations because of supply and demand for crypto.
Is Crypto Addiction a Risk? How?
It may be hard to believe, but some traders entered the world of crypto trading and gave up their long-term strategies to try and earn quick profits from fast-paced trading strategies such as scalping.
Scalping is a popular day trading strategy that involves the opening of trades and closing them within minutes or hours, to make small profits during these short bursts of trading.
African traders are putting more capital on the line to try and make quick profits instead of buying crypto and using the long-term strategy to HODL.
Cryptocurrency trading is seen as the cocaine of gambling as it can be done 24 hours a day, 7 days a week across several platforms including your phone and your laptop. It can also be done in any room in your house, while you are at work, or otherwise interacting in social environments.
Cryptocurrency traders have access to the crypto market no matter where they go and while this is helpful for traders to harness opportunities in the market, it is detrimental for others who have become addicted to trading much like those who have a gambling addiction and who have access to the means and method to gamble.
One of the crucial components that all traders must have when they start trading revolves around a solid trading plan and that it is not seen to escape from reality. This trading plan contains a set of predefined rules to keep trading aligned with the trader's objectives and trading strategy.
A trading plan not only prevents chaotic trading, but it keeps traders disciplined in ensuring that they do not risk more money than they can afford to lose. Another important factor that forms part of the trading plan is the fundamental understanding of trading psychology and ensuring that traders practice control and restraint and that they do not allow the market to direct their trading.
A factor plaguing traders who become addicted to crypto trading is that they might be able to salvage their losses if they place more capital on the line, hoping that the market will turn in their favor.
However, this type of thinking often sends traders down a rabbit hole and they may not realize that they have an addiction to cryptocurrencies.
HODLing is one of the strategies that ensure that traders can maintain control over their trading by allowing their investment to grow and mature before they either cash out their profits, or give up their position, accept their loss, and review their strategy and entry points.
Trading psychology and realistic expectations are therefore crucial components in trading to ensure that traders refrain from letting their emotions, or the market, affect their trading discipline or lead them away from the objectives that they set out to achieve.