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DEC 6, 2023


by Crypto Alpha, BXVb7rtP5dwgpuKWx3S1B78sdwibsPstuowsyzjpU1jE

In navigating the unpredictable financial markets, successful investors turn to Dollar-Cost Averaging (DCA), a powerful strategy involving regular fixed investments in an asset, irrespective of market fluctuations. Read more below...
Investing in the capital market (stocks, forex, commodities, and crypto) can be very tricky, as it’s almost impossible to consistently call the highs and lows (turning points) of the market. As an investor (beginner/expert) the first question you want to get an accurate answer to is the safest entry to buy your asset(s) of interest.

The market is a home of uncertainties, in other to create probable outcomes over a long period of time, an investor should create a rule-bound and effective approach in their dealings with the market. This is a world of dog-eat-dog, in other to survive in this jungle and to also come out unscathed over a long period of time an investor is expected to utilize an efficient, time-tested strategy in dealing with the market. This will not only ensure longevity, capital protection, and simple-reproducible results, that will not only maximize profit potentials but also guarantee a healthy psychology (peace quotient).

Take Note.

What is DCA?

Dollar-cost averaging is an efficient strategy adopted by successful investors to mitigate the risk of market volatility and cut out analysis paralysis when they want to buy their asset(s) of interest.
This is an act of buying a set amount of an asset at a regular interval. For instance, buying a certain amount of any cryptocurrency e.g. ($BTC, $ETH, and $BNB) on a weekly basis or at every 10% price discount or different price levels. This particular style of investment helps investors to average the price of any particular asset by ensuring that they do not buy too little when it’s cheap or too much when it’s overly expensive.
DCA can be automated to eliminate any form of stress or forgetfulness, it can also be done manually, depending on which approach an investor is comfortable with. Investors can buy an intended asset on whatever timeframe that they are comfortable with (weekly, daily, monthly) or perhaps at a certain price percentage (10%, 20%, or 50%), as well as price levels for those that are familiar with Technical Analysis (TA).
To get an outstanding result, the Dollar-cost averaging strategy should only be employed for long-term investment. This is a strategy that can be adopted by virtually all kinds of investors whether they have a lump sum for investment or they intend to use a certain percentage of their wages/savings, either as beginners or intermediates, or experts.

Let us Look at an Example:

To simplify what the DCA strategy is all about, let us consider investor A, who chose to buy $ETH at intervals by buying $100 worth of Ethereum ($ETH) every month, for eight months, and investor B, who bought a lump sum at a go in the same year (2021).
By using the DCA strategy, investor A decided to invest $100 into $ETH on the first day of each month, from January to August. Investor A's, $800 worth of Ethereum would be worth $1,211 on the 1st of August 2021.
Investor B might have invested his $800 into Ethereum at a go when the price was at its peak on at 12th of May, 2021 when $ETH was trading at $5,483. This will bring the worth of his investment to $496 as of August 2021.

Case 2

Let us assume another scenario where investor B was able to time the market with accuracy, he would have invested on the 1st of January in the same year (2021) when $ETH was worth $966.06. It would leave him with an investment worth $2,000 by August. This scenario can be tied to luck because such an act of timing the market cannot be consistently reproducible.

DCA for Profit Taking (Selling off Your Return on Investment);

In as much as where to buy can be tricky, selling to lock in profits can even be more complex. An investor is usually worried or regretful if they lock in profits, only to see the market gravitate towards more profit after exiting. This may lead to analysis paralysis, or fear of missing out (FOMO), which could bring about inactions that can cause investors to give some of their profit if not all back to the market. To solve this problem without any complexity, DCA can be utilized just as it was used to get into the market. An investor can be creative about their entry into the market, similarly, they can also be creative about exiting.
Levels, timeframes, and percentages; can also be tweaked to suit an investor's style of exiting. If an investor is familiar with technical analysis, they can simply use levels with DCA to exit the market using pivot levels that can be seen from the chart.
Timeframes can also be utilized to get out of the market, for instance, they can decide to take out a certain amount of profit on a daily, weekly, monthly, or even quarterly basis, without the fear of missing out on further potential returns. If levels and timeframes don’t suit you as an investor, using percentages can be a very simple and efficient way of maximizing profit as the market evolves. 10-20-30% or whatever number of percentages an investor is comfortable with, they take profit each time the market covers the exact amount of percentage they chose.

Why DCA for Profit?

Let us look at a scenario when investor A decides to sell one piece of $ETH which was worth $1200, after accumulation. The price of his asset appreciated to $2000 and investor A decided to sell off all his $ETH at that price thinking the market had hit the top.  Investor B on the other hand decided to take partial as the market evolves through levels and percentages. Investor B realized that the market had not reached the top and he/she went ahead to make 2X profit of what ‘investor A’ who took profit all at once made.
Employing DCA cannot be overemphasized for traders/investor who does not have the expertise in technical analysis and also for long-term investors. The benefits outweigh the disadvantages.

The beauty of DCA is that;

The only major disadvantage of DCA is that an investor would not make the same amount of returns as compared to those who were able to buy the bottom (which is highly unlikely as no one can fully determine where the bottom would be).
Nevertheless, the advantages of DCA outweigh the disadvantages. With DCA even a noob can approach investment with a high degree of risk mitigation. DCA offers investors varying creative approaches, they can choose whatever method; amount, percentage, levels, and timeframe among other factors with how they choose to execute their investment. Just create the rules and start investing...
Will you start your investment plan with the Dollar-Cost Averaging strategy right away? Let us know in the comment section below.
Until next time, keep learning and earning...
©Crypto Alpha, 2023.
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2 months ago
The strategy of old
last year
DCA A Double EDGE Sword 🗡️