The cryptocurrency market is known for its fierce volatility which makes it unattractive to less aggressive investors.
Investors often wonder about the best approach to cryptocurrency investments.
A thread
Investors often wonder about the best approach to cryptocurrency investments.
A thread
In a bear market, such as we are currently, sometimes we often have doubts about investing more into a token, especially when we have invested alot
But this particular strategy helps to lowers risk and maximize profits
This strategy is called Dollar-cost averaging (DCA)
But this particular strategy helps to lowers risk and maximize profits
This strategy is called Dollar-cost averaging (DCA)
Dollar-cost averaging is an investing strategy where an investor invests a total sum of money in small increments over a period of time as opposed to investing all at once.
DCA is designed to help offset any negative effect on an investment caused by short-term market volatility.
DCA is designed to help offset any negative effect on an investment caused by short-term market volatility.
For instance, if the price of an asset drops during the time you are dollar-cost averaging, then you stand to make a profit if the price moves back up.
DCA is the best approach for individuals who are not professional investors.
DCA is the best approach for individuals who are not professional investors.
It can save an investor a lot of effort trying to time the market in order to get the best prices.
It is a tool for investing slowly and consistently and it aims to protect against the human tendency of wanting to gain all at once.
It is a tool for investing slowly and consistently and it aims to protect against the human tendency of wanting to gain all at once.
Practical example
Say you and person A plan to invest a total sum of $12,000 into LUNA, whose previous peak price was around $90,
and you decide to invest $12,000 equally over the next 3 months (i.e., $1000 per week) between the 8th of May and the 8th of July, 2022.
Say you and person A plan to invest a total sum of $12,000 into LUNA, whose previous peak price was around $90,
and you decide to invest $12,000 equally over the next 3 months (i.e., $1000 per week) between the 8th of May and the 8th of July, 2022.
While Person A just invests his $12,000 into Luna at once at the price of $90
If the price of Luna drops from $90 to $45, 2 weeks after you started investing, your $2000 ($1000 per week) will only drop to $1000.
If the price of Luna drops from $90 to $45, 2 weeks after you started investing, your $2000 ($1000 per week) will only drop to $1000.
unlike if person A who invested the whole $12,000 (which would be $6000 after the luna's drop to $45).
By applying DCA, you put yourself in a position where you can minimize your losses and still have capital to invest and maximize your profits from the token you invested in.
By applying DCA, you put yourself in a position where you can minimize your losses and still have capital to invest and maximize your profits from the token you invested in.
Now you still have $10,000 extra to buy more Luna at the price of $45 per unit. And by the time the prices goes back up you have more profit.
Unlike Person A who invested his $12,000 and is down by $6000 as a result of the drop.
This is how you apply DCA
Unlike Person A who invested his $12,000 and is down by $6000 as a result of the drop.
This is how you apply DCA
But With every golden strategy, there are downsides
The most notable downside of DCA is the possibility that you might miss out on a large gain you could have earned if you had invested all your money at once when the market was down.
The most notable downside of DCA is the possibility that you might miss out on a large gain you could have earned if you had invested all your money at once when the market was down.
Another risk is that you may buy after a steep rise in asset prices and face a downward correction afterwards.
A DCA strategy, over time, usually includes buying assets at any stage, whether it be stable, depreciating, or appreciating.
A DCA strategy, over time, usually includes buying assets at any stage, whether it be stable, depreciating, or appreciating.
If done consistently, a DCA strategy tends to lower your risk and does better over a long-term horizon.
This is why DCA is adviced for people who aren't so knowledgeable or can't afford to take risk in this crypto .. DCA is for you
This is why DCA is adviced for people who aren't so knowledgeable or can't afford to take risk in this crypto .. DCA is for you
Loading suggestions...