Today, we are discussing What is Dollar Cost Averaging ?
“Averaging in”, “DCA”.
Dollar-cost averaging (DCA), is a series of buying events where you continually buy as the price falls.
This strategy of investing allows for you to lower your average price per coin, meaning when the price eventually goes up your Percentage (%) gain will be greater.
Averaging out your buys means that you can secure a position and be covered for up and down movement of price:
•If the price goes up and pumps then you have a position and make a profit, yes you will make less overall as you would have only put in 50% for example , but you still would have gained
•If the price goes down you will now be able to buy again at an even lower price as you haven’t gone all in at one price, so now you can lower you Price Per Coin (PPC) meaning you’ll make greater gains once the coins pumps
How much should I initially invest when I use the DCA strategy?
Using 50% of your funds that you’d like to invest in that coin with is a good starting point, this can increase or decrease depending on technical analysis and whether or not your bullish or bearish at the current price.
You would then continually buy as the price falls using 25% at a lower price and then waiting for another fall and using the remaining funds at this price; this a a very crude and simple way of averaging in and can be fine tuned to every situation.
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Eg.
Coin: DOT
Current price: $30
Funds: $1,000
•Context: The price action on the 1D (daily) chart shows the price is falling, and new red candles are forming to the downside.
•You have done your research, like the project and believe the coin will pump and want to secure a position, but you think that the price could fall below the current $30 in the short term.
1st Buy:
•The price per coin is $30
•Buy 50% ($500), @ $30.
•$1,000 – $500 = $500
•Amount of coins bought: 500 ÷ 30 = 16.6 DOT
(The amount of coins can be send in your wallet so working it out like this isn’t needed)
2nd Buy:
•The price per coin is now $25
•Buy 25% ($250), @ $25
•$500 – $250 = $250
•Amount of coins bought: 250 ÷ 25 = 10 DOT
3rd Buy:
•The price per coin is now $20
•Buy 25% ($250), @ $20
•$250 – $250 = $0
•Amount of coins bought: 250 ÷ 20 = 12.5 DOT
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You have now used up all the funds you allocated to this coin.
Now you need to workout you Price Per Coin (PPC)
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PPC = Initial Investment(s) ÷ No. Coins
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For the example above the PPC would be:
Initial investment: $1000
No. Coins: 16.6 + 10 + 12.5 = 39.1 DOT
$1000 ÷ 39.1 = $25.58 per DOT
