Volatility is widely cited by most investors who are still outside the crypto market. Although it has declined a lot in recent months, it has a history of being quite high and is often described as a reason that discourages some people from seeking exposure to that asset class.
As we are very close to beginning investors, we also perceive the question of insecurity and doubt a lot, in relation to the right moment to start and difficulties in drawing up an initial plan.
Despite being warned by large investors as something not to be done, people who are new to the market generally seek to hit the top or bottom of the market when operating the asset they want to buy or sell. For those who have been operating for some time, they know that this is easier in theory than in practice, even for more experienced professionals, who use several techniques in the search to generate Alpha (ability of a strategy to obtain profits above expectations) .
There are some ways to minimize the impacts of volatility and provide more intuitive ways to initiate exposure to Bitcoin, seeking to manage the risks involved in price fluctuations and the knowledge gap, as it is a new asset class.
One such form is the Dollar Cost Averaging (DCA or average cost in dollars), a strategy that can be used for any asset. DCA seeks to provide a more advantageous average price through partial and regular purchases. Due to the high volatility, the investor is able to reach different prices, taking advantage of market fluctuations.
If a novice investor with little or no experience in technical analysis is interested in Bitcoin wants to acquire $ 1000 to know the asset, he can make partial purchases of $ 250 a week for example. Thus, the position is gradually and calmly set up. Avoiding making a single purchase and going to "All In" ", this can be a risky strategy for beginners, since entry can be at a very high price, at the top of the market or even at a turn of trend. it causes your capital to be exposed and can be hit by an abrupt reversal, causing you loss.
With partial purchases, if the price goes up, the position goes along, even if it is still small. However, if the price drops he will have the chance to make new entries, thus improving his average price.
It is possible to start with small purchases, a small percentage of the monthly salary per example. And after studying all the processes and acquiring the necessary confidence and knowledge, the percentage of entry can increase. DAC is a beneficial way to beginners.
Many people were caught by FOMO in late 2017 and entered the euphoria when Bitcoin reached $ 20,000, a distorted price level, dropping to $ 5,900, a 70% drop in less than two months. A frustrating experience for anyone who entered the market at the time in the wrong way.
Taking care of your survival in the market and making volatility work in your favour.
When there is a strategy that provides some level of automation for operations and it is followed with discipline, this keeps the investor away from the market balance and short-term residuals, resulting from news that generate volatility.
This can protect the investor from the herd effect. It also avoids being driven to impulsive decisions and the roller coaster of emotions caused by the market, contributing to the maintenance of a good psychological condition so essential for an investor.
Appropriate behaviour is often cited by expert and experienced investors as one of the main characteristics for long-term success. Check out the advice from all of the biggest investors in history, related to patience and volatility.