I’ve actually been out of the cryptocurrency world for more than a year after selling all the cryptos I owned.
I had bills to pay and hodling wasn’t an option.
Okay, so I missed out on the recent highs that Bitcoin has reached, but I originally bought Bitcoin when it was in the $200 – $700 range and sold it when it was around $6,000.
That’s not a return I can complain about! 🙂
But now I’m getting back into the world of crypto, but in a small way.
Buying Bitcoin, or any cryptocurrency and hodling is essentially a gamble that may or not pay off in the long run.
All the cryptos have seen major drops in value at one time or another and if you panic easily, then you probably sold to cut your losses.
My thinking is that you should only buy and hold cryptos with money you’re prepared to, and can afford to lose.
Trading is different.
In this case, you’re making money from the movement in prices of cryptocurrencies.
The actual value of any crypto doesn’t really matter.
What does matter is that it’s actively bought and sold and there’s enough price difference in highs and lows to be able to make a small percentage on a trade.
Using this type of strategy, you can still make a profit whether the price of the coin is rising or falling.
The real trick is in compounding your profits over time.
Let’s say you start out with $100 you can afford to lose.
And you average a 1% profit each day.
Some days you’ll make more than that, some days less, and some days you don’t do trades at all.
So how much would your $100 stake have grown in just a month?
If you calculate using standard interest, you’d make 1% (on average) per day on your $100, so $1 per day.
After 30 days, you’d have $130.
Now, let’s calculate using compound interest.
On Day 1, you make 1%, so $1 and you have $101 at the end of the day.
On Day 2, you make 1% of $101 – $1.01 – so you have $102.01 at the end of Day 2.
Day 3 brings you a profit of 1% of $102.01 which is $1.02 and you end up with $103.03.
Continue that compounding of interest for 30 days and you end up with $134.78.
That’s a 34.78% profit instead of a 30% profit.
Okay, so there’s 4 bucks and change in the difference.
That’s nothing to write home about.
Let’s stretch those figures out to 3 months.
With standard interest, you’d end up with $190 after 3 months.
With compound interest, you’d end up with $244.86.
After 6 months it’s $280 vs $599.58.
After 9 months it’s $370 vs $1,468.15.
And, after a year, it’s $465 vs $3,778.34.
That’s the power of compound interest.
That all sounds great in theory but how about some real world thinking?
Well, there’s a simple system for trading cryptos that’s been taught since 2017 and it’s turned many of its members into full-time day traders.
Others use it as a side-hustle to create additional disposable income or cover the shortfall between what they earn in their regular jobs and the cost of bills that come in each month.
It’s where I started and one of the trading strategies I’ll be following.
I’ll post my results here, good or bad, from time to time.
Not every trade I make is a success, but it’s the overall trend in profitability that counts.
Slow and steady wins the race here.
Maybe you’ll join me on my journey?
Filed under: Cryptocurrency Trading