Investment strategy plays an extremely important role, used by many investors to limit risks.
DCA is known as a popular price averaging strategy in crypto investment in particular and the financial market in general.
So what is DCA?
How to apply DCA to buy crypto?
Join Tra Dao Crypto to learn thoroughly about price averaging (DCA) strategy through the article below.
What is DCA?
What is DCA? DCA short for Dollar Cost Averaging is a price averaging strategy in investment, helping to reduce risk and effectively increase the number of coins purchased.
Apply the DCA strategy by dividing the number of purchases at different prices. The total price of the average splits will yield the best overall price.
Note that this is only the average price decrease, not the average price increase. Always keep 10% to 20% Stablecoins in case the price plummets.
For example: You have 10000$ and want to buy ETH for 2000$ per ETH. Instead of buying 5 ETH at once, apply DCA as follows:
1st time: Buy 2 ETH for 2000$ each ETH, remaining 6000$.
Second time: Wait for the price to drop to $1,500 and continue buying 2 ETH, leaving $3,000.
3rd time: Wait for the price to drop to $1000, then continue to buy 3 ETH, completing the buying process.
Thus, with the same investment amount, instead of only owning 5 ETH for an average price of $2000. After applying the price averaging (DCA) strategy, you already own 7 ETH with an average price of about $1428.
See more: 🔗 How much money does it take to play Bitcoin? How to invest in Bitcoin in Vietnam.
Why should DCA be applied?
1. DCA helps reduce emotional investment
When investing in crypto, it is extremely important to maintain a strong mentality and not get caught up in erratic buying and selling emotions throughout the investment process.
DCA is a strategy that helps you invest with planning and discipline, eliminating “peak swings.”
Minimize emotional investment decisions or psychological influences when suffering from FOMO. This is a mistake that most new crypto investors encounter.
2. DCA helps optimize investment costs
The crypto market is constantly going up and down, and it is not easy to predict whether buying at the current price has “bottomed out” or not.
The DCA strategy helps you always buy the lowest possible coin price.
Applying DCA, in addition to having a good position, you will not need to put too much money into one investment, the amount will be divided and spread over a pre-planned period of time.
3. DCA simplifies the investment process
No need for complicated analysis, no need to waste time finding the bottom and guessing the top like other methods.
DCA is a simple but scientific and highly effective investment strategy. Easy to apply, even for those new to cryptocurrency trading.
However, there are many ways to apply the DCA strategy. Below are two common ways to apply DCA in crypto investment.
Price averaging (DCA) strategy in crypto investment
Strategy 1: DCA periodically
Periodic DCA means you will invest over a set period of time, whether the value goes up or down. This strategy requires a strong mentality and reasonable capital, otherwise you may run out of capital midway.
In return, you will be very free and do not need to care if the price goes up or down, this requires you to have absolute trust in the coin and the previous roadmap.
The process of applying DCA periodically is as follows:
Step 1: Find and choose a potential coin.
Step 2: Choose the investment frequency: it can be yearly, monthly or daily.
Step 3: Determine the investment amount according to the frequency above.
Step 4: Be disciplined and make regular investments according to plan.
Step 5: Calculate the average price of the invested amount compared to the current price.
Step 6: Evaluate effectiveness.
Strategy 2: DCA at the appropriate time
Also known as flexible DCA strategy.
Instead of continuously investing periodically without observation, this strategy requires analysis of price fluctuations and acumen about market news to determine the appropriate time to buy.
For example: News about Bitcoin ETF is "very hot" at the moment. If you predict the price of Bitcoin will increase, this is a good time to "consolidate" before the price is likely to increase.
Limitations of price averaging (DCA) strategy
Although the price averaging (DCA) strategy brings many advantages, it comes with limitations of this strategy:
Select reputable coins to avoid losing everything if this coin disappears.
Must be a tough Hodler, holding for a long time to minimize the cost of holding the largest number of coins.
Low profits, because the nature of the DCA strategy is to help limit losses.
Instead of buying once, you have to buy multiple times, which costs more time and transaction fees.
Therefore, before applying the DCA strategy, you need to clearly define your investment intentions. Refer to the article: What is Hold coin, Trade coin? How to play coins suitable for newbies.
Epilogue
Through this article, Tra Dao Crypto has introduced to you the DCA price averaging strategy. The main purpose of this strategy is to help you split your money, thereby minimizing investment risk.
Note that only apply DCA when you truly believe in the coin. Because DCA will be the optimal strategy if you choose a long-term investment style.
What is DCA? Do you really understand how to apply? Leave a comment below or Join the Crypto Tea Ceremony community to discuss together.
Don't miss out on basic to advanced crypto knowledge. By saving the DETAILED CRYPTO INVESTMENT MANUAL compiled by the Tea Ceremony Crypto team.
