A very widely-used methods for building wealth in crypto includes Hodling however there’s another aspect to holding that a lot of novices to crypto are unaware of. Holding is a longer-term strategy that aims to hold a cryptocurrency for the course of. The intention is to have the coin shift between points A (low price) to point B (high price). But, there are other ways that investors can benefit from the holding strategy and we will be looking at the dollar-cost average (DCA) technique.
What is Dollar-cost Averaging (DCA)?
In dollar-cost-averaging investing, a person invests in pieces over time rather than investing in a huge amount at one time. The goal is to profit from the market’s downtrends and thus increase profits. With DCA novices can reap the maximum benefits of the cryptocurrency market by benefiting from the downtimes in crypto and boosting his portfolio every time prices decline. At the end of the day the coins will be sold to make more money.
Averaging the cost of a dollar is an traditional investment technique that is used by the index and stock market funds, and is also applicable to cryptocurrency. DCA helps the investor in protecting his money from loss and also improve the margin of profit. This kind of trading strategy is ideal for novices who are looking to invest for the long run and who could be prone to panic when the market falls. In addition, many skilled traders employ this strategy instead of trying time the market to obtain the most favorable price.
Also read: How to be a successful Bitcoin trader
How Dollar-cost averaging Works
In the dollar-cost-averaging method investing, a person invests in pieces over a time period as opposed to investing a huge sum all at once. The idea is to benefit from the market’s downtrends which can increase profit. Thus investors who want to invest $500 into Coin A will need to divide the money into three locations. Let’s say that he has $150, $200 and $150. He could purchase Coin A at $1.4 which will give him 142.8 coins. If the cost of the coin decreases to $0.9 the investor would then invest a portion 2 ($150) of the capital and receive 555.5 coins. If the value drops to 0.72 the investor will receive 694.4. If he put down the lump sum of $500, he’d get 357.1 coins, in lieu of 1392.7 coins. If the value of coins rises the investor will earn greater profits.
One of the advantages that comes with DCA is the fact that it removes the emotion associated with trading, particularly during dips. But, if you put in small amounts of your funds in the event that the market chooses to make the opposite and go through a bull run, you’d miss out on lots of revenue. Also, there is the issue of transaction fees which you could incur when investing in pieces. In the final analysis, DCA is a long term strategy that helps investors in the long run and takes advantage of the depreciation of assets.