People have been trying to "timing the market" ever since cryptocurrencies were first introduced (i.e., pinpoint the ideal time to buy or sell crypto).
This has been shown to be difficult, even for expert investors who spend all of their time researching the market because there is no crystal ball to consult. To put it another way, very few people are successful with this tactic.
What are some of the other options?
Enter the strategy of dollar cost averaging, also known as DCA in the world of cryptocurrencies and stock markets. It is the practice of continually investing a low, predetermined sum of money, with the expectation that, over the course of time, this strategy will provide higher outcomes while simultaneously saving you time and easing your worries. The procedure is as follows.
The method referred to as DCA is the practice of setting aside a predetermined sum of money at predetermined times in order to make a purchase of an asset. For instance, setting aside $100 US dollars every Monday in order to purchase Bitcoin.
Spreading out your expenditures over time rather than making one large purchase will lessen the likelihood of suffering a significant financial setback, which is beneficial not just for your pocketbook but also for your peace of mind. Users of cryptocurrencies who wish to maintain their involvement in an asset throughout a down market frequently turn to the DCA trading technique.
Find out more about how DCA works, its advantages and disadvantages, and how to easily set it up by reading this article.
This trading method is not unique to the cryptocurrency industry; rather, it has been utilized for decades in the realm of traditional banking (TradFi). To put it another way, the primary goal of this approach is to provide an alternative to the lump-sum (LS) strategy by omitting the step of timing the market, which is normally required in order to make a profit.
An approach known as LS is one in which all of an investor's available capital is invested in an asset all at once. Those that employ this tactic watch for a precipitous decline in the value of an asset's market price so that they can make purchases at the most favorable terms and then profit from a subsequent price appreciation.
Read More: Top 13 Day Trading Books For Beginners
Mutual Funds for Dollar-Cost Averaging
Many investors pick mutual funds as the vehicle for dollar-cost averaging because, typically, funds can be purchased through either a fixed dollar amount or a specific number of units. This flexibility makes mutual funds an attractive option for dollar-cost averaging. Some brokerage firms do not let investors to acquire fractional shares of stocks, which makes it impossible for those brokerages to participate in a fixed-dollar DCA program.
The Dollar Cost Averaging (DCA) method is a simple and effective technique to develop your position in cryptocurrency, particularly for those just starting out. If you find yourself holding on to your assets because you don't know when the ideal time is to re-enter the market, utilizing DCA can help you kick your anxieties to the curb and leave your holdings behind.