Dollar-cost averaging, or DCA, is a neat and straightforward way of approaching investing in cryptocurrency with many benefits. We will explain what it is, and which two main approaches you can take in your DCA strategy.
The cryptocurrency market can be incredibly volatile and unpredictable, leading many traders to make impulsive and emotional decisions. Dollar-cost averaging (DCA) is a well-established investment strategy that can help mitigate the risks associated with the crypto market.
Advantages of dollar-cost averaging
Dollar-cost averaging is a simple but effective strategy that involves regularly investing a fixed amount of money into an asset. By doing so, an investor spreads their risk over time and smooths out market fluctuations. This also helps to avoid emotional trading decisions, such as selling in panic during a market downturn or buying in euphoria during a bull run.
How to implement dollar-cost averaging in crypto trading - approach 1
Implementing this approach to dollar-cost averaging in crypto trading is straightforward. First, set a budget and schedule for your purchases. This could be a set amount each week or month, for example. Next, choose your asset. Finally, stick to your plan and resist the temptation to make changes based on short-term market movements. Buy the asset (Bitcoin, Ethereum, or any other currency of your choice) at the set time with the set amount, and see your holdings grow over time.
How to implement dollar-cost averaging in crypto trading - approach 2
The second, and according to us better approach, is to still set a budget but instead of buying on a schedule, buy on pre-determined key levels. These are generally key resistances and support areas or order blocks on price levels that the asset has traded in the past. By using these levels, you can attempt a better buy-in level, thus lowering your overall purchase level.
This same approach can be used to take profits if an asset is increasing in price. This in turn prevents holding on for too long, and will help in realizing actual profits.
When you become a member of the website (signup here through Patreon) you will immediately gain access to our curated list of cryptocurrencies with key levels to buy and sell. You can refer to our public Bitcoin example to get a small taste on what to expect.
As always, be aware that no strategy is void of risk. This approach reduces the risk though, and takes out the emotional decisions since you have made your decisions ahead of time.
By regularly investing a fixed amount of money into a well-diversified portfolio, investors can enjoy the long-term benefits of steady, consistent growth. While there is no guarantee of profits in the crypto market, taking a long-term approach and implementing a dollar-cost averaging strategy can help ensure a more stable and successful investment journey.