Dollar Cost Average, a trading technique to remove any short-term price speculation out of your investments. Dollar cost average , or DCA, means investing set amount of money into an asset on a regular basis, disregarding the price action.
Long-term investors tend to be more likely to prosper than those trying to buy low and sell high in the short or medium term, and dollar-cost averaging can help to create wealth in diciplined way.
What’s the best way to get into any market for the long term? Dollar cost average (DCA) is one of the most effective strategies for investors looking to smooth out the natural dips and rips that occur in markets. This holds even more true in markets notorious for volatility like crypto.
Dollar Cost Averaging Benefits On Cryptocurrency
A sharp downturn in markets need not be feared by the dollar-cost averaging investor
Investors can combine dollar-cost averaging with regular deposits into an investment account or crypto exchange which allows investors to save and invest more reliably and efficiently
In the words of billionaire investor Charlie Munger: “The real money comes not in the buying or the selling, but in the waiting.”
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A more common saying today might be that your “time in the market is more important than timing the market.” In other words, long-term investors tend to be more likely to prosper than those trying to buy low and sell high in the short or medium term.
Benefits of Dollar Cost Average
There are both pros and cons to the DCA strategy. But the benefits tend to outweigh the drawbacks. Some of these benefits include things like:
Risk Reduction :: A sharp downturn in markets need not be feared by the dollar-cost averaging investor. In fact, it might be welcomed, because buy orders during a correction will be more beneficial.
Emotional Detachment :: It’s easy to get caught up in FUD during bear markets or FOMO during bull markets (especially with all the great crypto memes out there). But DCA is more of a “set it and forget it” type of process that filters out market noise. Marketing timing also becomes irrelevant.
Disciplined Saving :: Investors can combine dollar-cost averaging with regular deposits into an investment account or crypto exchange. Doing so can allow investors to save and invest more reliably and efficiently.
There are other benefits as well, but these tend to stand out when it comes to crypto.
How Does DCA Work?
The dollar-cost average can be divided into two components – the fixed amount to invest and the regular interval to invest that amount.
For example, let us assume that the fixed amount to invest in is $1000. That is how you can afford to risk in the cryptocurrency market. In your first month, you spend $1000 to purchase a fraction of Bitcoin. As you keep investing that amount every month, you will notice that during some months, you will be able to purchase more Bitcoins because of price volatility. This way if you have a five-year target, you will be consistently funding your investments for those five years and putting money in the market, rather than timing the right moment. This is an effective strategy in the cryptocurrency market. The same can be used for Ethereum, Binance coin, Ripple, Polkadot, Solana, Cardano etc. Another important aspect to remember here is to choose the right asset to invest in. This will require dedicated research and analysis. Dollar-cost averaging only works when you keep investing in one particular asset. Hence, choose the most reliable option to safeguard your investments.
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Dollar Cost Averaging Strategy in Cryptocurrencies
All you need to pull off a DCA strategy in crypto is to
- be long-term bullish on crypto and
- automate your regular DCA purchases. This way your emotions will not come into play.
You spend the same amount of fiat on bitcoin every month.
You buy your DCA share of bitcoin on the same day every month, regardless of how the market is moving.
Adding to your stash makes more sense than hodl, since you are already long-term believer.
If your goal is most of all to get more crypto, then in the long run, doing DCA with skull-splitting regularity beats simple hodling.
The reason is obviously that with DCA you are adding more money to your crypto stash.
Adding to your stash makes sense, since you are already long-term bullish.
Most crypto hodlers don’t DCA simply because they don’t think adding a little bit every month will make a difference.
The information provided on this artical or website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website’s content as such. Timeradical.com does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.