Trading is a sort of a game or war, or it could become a gamble if investors do not have a proper preparation like knowledge and skill just depending on luck.
One of most important factor of trading is time.
Everybody want to know when prices are low and when prices are high.
This time matter is very difficult even for professional traders. Nobody know the future, we just try to estimate closely having continuous try and error.
DCA (Dollar Cost Averaging) is one of investment strategy that can help you buy more when prices are lower and less when prices are higher. That provides an easy way to mitigate some of the risks of entering a position.
Bitcoin DCA Investment Accumulated for last 3 years
What is dollar-cost averaging?
Dollar-cost averaging is an investment strategy that aims to reduce the impact of volatility on the purchase of assets.
It involves buying equal fiat amounts of the asset at regular intervals.
The premise is that by entering a market like this, the investment may not be as subject to volatility as if it were a lump sum (i.e., a single payment).
How so? Well, buying at regular intervals can smooth out the average price.
In the long term, such a strategy reduces the negative impact that a bad entry may have on your investment.
dollar cost averaging enabled our hypothetical investor to take advantage of a price decline in Month 3, significantly reducing the average cost per share. Despite paying $4 or more per share in four out of the five months, the average cost per share came out to $3.70, and the investor was able to purchase a total of 135 shares.
Advantage of DCA
The main benefit of dollar-cost averaging is that it reduces the risk of making a bet at the wrong time.
Market timing is among the hardest things to do when it comes to trading or investing. Often, even if the direction of a trade idea is correct, the timing might be off – which makes the entire trade incorrect. Dollar-cost averaging helps mitigate this risk.
If you divide your investment up into smaller chunks, you’ll likely have better results than if you were investing the same amount of money in one large chunk.
Dollar-cost averaging, of course, doesn’t completely mitigate risk.
The idea is only to smooth the entry into the market so that the risk of bad timing is minimized. Dollar-cost averaging absolutely won’t guarantee a successful investment – other factors must be taken into consideration as well.
Some people adopt a “buy and hold” strategy, where essentially the goal is to never sell, as the purchased assets are expected to continually appreciate over time.
The case against dollar-cost averaging
According to some, it’ll actually make investors lose out on gains when the market is performing well.
How so? If the market is in a sustained bull trend, the assumption can be made that those who invest earlier will get better results. This way, dollar-cost averaging can have a dampening effect on gains in an uptrend. In this case, lump sum investing may outperform dollar-cost averaging.Crypto market is different with tranditional finance market such as stock marekt.
It still has some of volatile trend and in the status that struggle to prove its own worth. So, the time and depth of winter season and even summer season are more unclear and hard to predict. Having deeper technology basement and smarter talents in a variety of crypto sectors, the volatility would be weaker in more polished policy and rule protection.
Source: Charles Schwab, Binance