Fundamental analysis grows increasingly important as the time span of trades lengthens, while technical analysis is usually utilized to find good entry points. See the article on technical and fundamental analysis to find out more about these types of market analysis.
LONG-TERM TRADING METHODS ESSENTIALS
- Long-term trading methods are carried out on long time spans.
- These methods do not require much time input and attention.
- Exceptional knowledge of fundamental analysis is required.
- Traders should pick their prefered trading method based on their knowledge of fundamental analysis, technical analysis, and the time available for trading.
- Long term trading methods:
- Position trading
Position trading is a trading method where the time duration between buying and selling an asset lasts from several weeks up to a year or even more.
Position trading strategy
This method is long-term oriented, meaning actual trades are rare, usually up to a maximum of 10 trades per year.
Position traders are trend followers. This means they believe that when a (bullish or bearish) trend starts, it is likely to continue. Therefore, the perfect entry point is just before a long-term bullish market reversal, or soon after the bullish trend has started.
As opposed to swing trading, day trading and scalping (see the article on short-term trading methods to get more info on these), position trading does not take notice of medium and short-term price fluctuations, as the positions are left open until the long-term targets are met.
Position traders utilize technical analysis to identify good entry points, while exceptional fundamental analysis could help them evaluate what price an asset will reach in the future. Because the duration of these investments is long, it is wise to set multiple profit-taking price targets and sell a portion of holdings at each target. This eliminates the risk of a potential market reversal before at least some of the targets are met.
- Does not require much time and attention
- Usually considered less stressful
- Requires exceptional skills in fundamental analysis
- Very situational; requires a strong and consistent uptrend, therefore it is not a suitable method for a bear market
Investing is trading the market cycles. This makes it – apart from holding – the longest-timespan trading method. The length of an investment in the crypto market can vary from one year to several years.
This is an explicitly long-term-oriented method and does not involve active trading. Therefore, the number of trades per year, or even several years, is miniscule. The ultimate challenge in investing is to time the purchase perfectly. The prime time of investing is at the start of a bullish market cycle.
Market analysis in investing is similar to the one used for position trading. Fundamental analysis is used for long-term price evaluation and technical analysis helps the trader find a suitable entry point. Again, it is advisable to choose several profit-taking targets to make sure to collect the profits evenly.
- Does not require much time and attention
- Not considered very stressful
- Relatively safe
- Tied to overall market performance
- Requires cutting-edge fundamental analysis skills
- Very situational – finding the perfect entry point is difficult, as the start of a fresh market cycle happens very rarely (once per year or even several years)
The philosophy of holding, in crypto jargon also called “HODLing” (a popular misspelling that caught on), is to buy an asset and keep it stored without selling it for a very long period of time. This approach is the longest in terms of time gaps between trades, as holders (or “HODLers”) usually keep the assets they have purchased anywhere from a few years up to a decade, or even permanently. Someone who uses crypto every day may always keep some stored at their address, just like a fiat user may hold some fiat in their bank account.
Holding is not an active trading method, as it merely consists of purchasing an asset and then keeping it stored safely. Holders do not sell their holdings in any market conditions, even if their purchased assets have experienced massive gains in a bull market or losses in a bear market. They firmly believe that the price will keep reaching new highs in the long run. Holders rely on fundamental analysis, as this helps them to estimate the asset’s potential value increase in the distant future.
- Requires no time investment, apart from buying and storing the asset
- Not stressful
- Technical analysis knowledge is not needed
- It is possible to miss out on potential profits by holding in all trends and not selling at the peak of an uptrend
- No guarantee that the assets will reach new highs in the future
All the covered trading methods in this and the article on short-term methods are viable in the crypto market and can result in steady profits, when mastered and utilized correctly. However, risk is always involved and should be mitigated with a correct stop-loss order placement. A complete trading style of each trader is often a combination of several methods, some short-term focused, and others long-term focused.