Dollar Cost Averaging
I should have gotten all in on Bitcoin when it was $800. I should have gone in at $2000. I should have gone in when the price was at $9000.
I should have then. It’s too late now.
The problem with this approach is that each of those price points were the highest from their previous highs and people were waiting to time the market.
While it is a great strategy to understand the technicals and know when to get in and when to get out, for most day dwellers that skill doesn’t come easy.
For us commoners there is an easier way to invest in Crypto and that is dollar cost averaging.
In simple terms, Dollar Cost Averaging (DCA) is investing a small portion of fiat into crypto irrespective of the price action.
You need two things in place to for DCA:
- A strong pick
- Budget to invest
A strong pick is just the project (or projects) you have done extensive research, understand the fundamentals and have an unwavering conviction that the project is headed for great things.
Next, you need to know how much you are willing to invest and forget.
And the ‘forget’ part is very important because cryptos may have immense potential to deliver massive gains but they also come with massive risk attached.
For some $1000 is something that they can invest each month and forget. For some that amount is $100. It doesn’t matter. You fit your own budget.
That’s all there is to it when it comes to dollar cost averaging: You just keep buying a small amount of your favorite crypto with the budget that you set aside that you are willing to lose 100% with the hope that you might gain a lot more.
Exit price and timeline
We personally may not liquidate our ‘under 1 Bitcoin’ holdings for a foreseeable future. We are talking about a decade-long timeline.
We are comfortable with that.
If bitcoin were to hit 6 digits in the interim, we will liquidate half and then forget about the remaining fraction.
You need to have your own exit price and timeline.
Why is Dollar Cost Averaging useful?
Timing the market
Those who try to time the market generally get succumbed to their own follies. Crypto market especially has a way to teach humility to even veteran traders.
Let’s say you do buy bitcoin at $800 and then you sell it out at $5000 thinking you were the hottest thing in the market only to see that bitcoin went to $20,000.
What if you got in at $15000 on its way down? You might have thought you got in at 25% discount from peak but then bitcoin dropped all the way to $3000.
However, those who were consistently investing in bitcoin using DCA have fared well during the same period.
Active trading time commitment
Lots of people do not have the time or patience to be glued to the charts and to execute flawless trades.
Even if you are among those brainy people who can time the market, the anxiety could be too much for some. The volatility in crypto space could cause panic for even the most level headed people.
Long haul vs short flips
If you are looking to jump from one asset to another for quick flips then DCA may not be for you. In that case, you follow whatever strategy works for you.
DCA is not for you if you can:
Time the market
If you have great grip on the fundamentals, analysis and trading patterns then you might
do well timing the ups and downs.
Have time to monitor and execute
If you have a lot of time on your hand to keep looking at the trades and execute them at
your desired target points then you might be OK to not use DCA.
Pump and dump insider
If you are part of pump and dump group and you know when your group is going to
pump a certain coin then you don’t need the patience or tenacity of the DCA clan.
We hope you found this quick primer on DCA.
Thank you for reading and sharing this article. We appreciate you.
Stay safe and healthy!
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