Trading and investing may sound the same, but in reality, they are as different as day and night. Trading refers to a short-term method of trying to profit from buying and selling of bitcoins while investing refers to a long-term strategy where a buyer will hold on to their bitcoins for a long time and ride out any dips in the market price.
The Bitcoin Trader
The Bitcoin trader thrives on the exciting volatility of bitcoins. Theyll try to time the market and buy bitcoins when the price dips and then theyll wait for the price to go up before they sell their bitcoins. Trading is a high-risk game because youre betting for the price to go up or down. Not everyone can trade, however. The most successful traders are those who have nerves of steel and can detach their emotions from their trades.
Traders dont get scared of dips in the price because they are optimistic its going to go up again, sooner or later. They are looking to maximize their profits, too, so theyll mostly invest a lump sum and buy at the lowest price they can possibly go for, and then theyll wait until the price is high enough for them to make significant profit.
Trading takes a lot of guts. It takes a lot of thought and analysis. If youre an emotional type of person who gets physically sick with every dip in bitcoin price, then youre better off investing, and not trading, in bitcoins.
The Bitcoin Investor
Bitcoin investors are different from traders. Theyre in it for the long haul. Theyre not looking to take advantage of short-term fluctuations in the exchange rate. If the price goes down by hundreds or thousands of dollars, theyre probably going to get worried, but theyre not going to pull out their investment because theyve already decided theyre going to hold it for the next 10, 20 or 30 years.
A wise investor will practice the dollar cost averaging method to manage risk. This means whether the price goes up or down, theyre going to buy bitcoins and hold them. This strategy is perfect for long-term investments as youre essentially spreading the risk. Though profits may not be as significant as short-term trading, the bitcoin investor probably sleeps easier at night as theyre not worried how the charts are going to look like tomorrow or the day after.