As in other markets, there is no crystal ball that can predict the "perfect" time to buy, but the average dollar cost can make market volatility work in your favor. That said, there is no magic lamp to predict the future for investments, but these tips are merely educational to have a foundation to start from. We always have to make our own independent assessment of whether an investment or investment strategy in particular is appropriate for your risk tolerance and your financial means, before making a transaction.
Cryptocurrencies like bitcoin have experienced price volatility in the past with values that oscillate two-digit percentage points in a single day, and sometimes even in a single hour. When the price starts to move, there is no shortage of FOMO around whether it is the right time to buy or not. As with any type of investment, this can cause a lot of anxiety, uncertainty or fear of participating.
The DCA is an investment technique that aims to reduce the impact of market volatility by investing a fixed amount in a regular calendar (for example, buying $ 100 of bitcoin every two weeks). And it is not exclusive to encryption: traditional investors have been using DCA for decades to overcome the volatility of the stock market.
When the market falls, those $ 100 will buy more bitcoins, which will increase the potential for more profit if the market recovers. When the market is up, those $ 100 will buy fewer bitcoins, which will reduce the risk of loss if the market turns in reverse.
The DCA can be an effective way to possess cryptography without the anxiety of committing a significant amount of capital at a fixed price at any given time. Not to mention that doing this provides the added benefit of adjusting this amount up or down as you go. However, if you are considering using DCA, first think about whether DCA is right for you and your own investment circumstances.
let's look at the following example with Litecoin, October 2018 - May 2019
During these 7 months, litecoin experienced volatility in its price, fluctuating between $ 22.95 and $ 114.86 per currency.
Let's say you decided to set up a recurring purchase for $ 200 of litecoin each month starting October 15, 2018. By May 15, 2019, I would have purchased $ 1,600 in litecoin. If you sold all your litecoin at this point, you would get $ 3,208.02, a gain of $ 1,608.02. Alternatively, if you purchased the same amount of litecoin ($ 1,600) in a single day, on October 15, 2018, and sold it all on May 15, 2019, you would get $ 2,721.17, that is, $ 486.85 less than earnings.
Market passivity is impossible, and cryptographic markets can be volatile. With DCA, you can turn that market volatility into an opportunity. As with any asset, cryptocurrencies may increase or decrease in value and involve the risk of a substantial loss, including the loss of all your investment. You must make your own independent decision to buy or sell cryptocurrencies and if they are suitable for your financial situation and risk tolerance before participating in any transaction.