Buying the bottom is unrealistic; even the best traders will most likely fail to buy the bottom. Enter Dollar Cost Averaging, or DCA, is in both the crypto and stock markets.
Dollar-cost averaging is about hedging your bets, restricting your potential upside to mitigate possible losses.
We focus on how to use DCA (Dollar-Cost Averaging) to get the best average entry on assets such as $BTC, $ETH, $MATIC, $STEPN, $SOL, $LUNA, and $EGLD.
What Is Dollar-Cost Averaging?
Dollar-cost averaging involves investing percentages of your portfolio at different interest levels (support). Consequently, it ensures exposure to the asset and leaves you with dry powder if the unexpected happens.
It refers to consistently investing a small, fixed amount of money. As such, it may yield better results over time while saving you time and your nerves.
DCA is a great technique for new investors because:
1. It gives a psychological buffer- Let us say John waited in $USD to buy $BTC at $12k, but $BTC touched $13k and never filled John's bids. John has no exposure and feels like he missed the boat to $100,000 $BTC.
$BTC started bouncing, and John FOMOed himself into longing for high leverage since he missed out on his bids.
TLDR: John gets rekt. This could have been avoided if John started DCA'ing into $BTC from above $12,000, even with a small percentage of his portfolio.
2. It reduces risk- DCA can greatly reduce risk if an asset keeps dropping to levels much lower than predicted.
3. It leaves you open for opportunities- Having fresh liquid capital ready to be deployed on the side is the number one rule of a good trader. We always want to have the dry powder in case a better opportunity pops up, a black swan event, etc.
How Does it Work?
With dollar-cost averaging, you first decide on the total amount you wish to invest, along with your chosen investment product(s) — stocks, crypto, commodities, etc. Then, instead of investing the money as a lump sum, you invest it in smaller equal installments over a specific time.
You may place your DCA trades manually, but vehicles such as 401(k) plans and some dividend reinvestment plans can do it for you, too. Once set up, your purchases occur automatically, regardless of asset price or movement in the market.
Final Thoughts
DCA is much like placing an order for a recurring buy on a cryptocurrency exchange. Cryptocurrencies can be quite volatile, frequently even more so than stocks.
It is ideal to use DCA mainly on assets you are bullish on long-term (large caps) and also remember altcoins have liquidity problems. Additionally, leave the capital to DCA on the way/reversal up rather than down.
A dollar-cost averaging strategy is worth considering if you want a relatively safe way of benefiting from crypto volatility. However, If you are not familiar with the concept and you are a newbie, it is not ideal for you to use DCA with leverage.
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