EDUCATION: DCA with Trader!
What is DCA? How to use the price averaging strategy to increase profits
DCA or price averaging strategy can be an effective way to manage risk when investing in assets like stocks, cryptocurrencies… I will walk you through how it works and its pros and cons. for easy understanding.
When considering investment, if you have a large amount of money in hand ready to invest. DCA is a method that can be suitable for both experienced and new investors to reduce the risk of seeing how their investments decline in value.[/I]
What is DCA?
- DCA (price averaging strategy) is a method of breaking down capital to invest in a fixed and more frequent way over a long period of time.
- This is a smart investment strategy. However, you must not confuse it with the fact that you bottom out the price of an asset when it drops deep to buy at a good price.
- DCA is really good if you correctly predict the trend by analyzing the market. And of course, the price averaging strategy must involve technical analysis or specifically instrument indicators such as MA, MACD, Bollinger bands, Elliott waves, etc.
Bitcoin problem using DCA
Now do a math on Bitcoin investment for you to visualize.[/I]
This is the case I think is mostly true for newcomers to the market. For example, you have 10000$ and buy it all with bitcoins for 8000$. You get 1.25 BTC.
Then Bitcoin achieves the gain/loss that you want to sell, then we will have a profit/loss table with the selling prices as follows:
- SELL at 6000$ = Take Profit -2000$
- SELL at 12000$ = Take Profit 2000$
- SELL at 14000$ = Take Profit 4000$
This is a basic math problem. The next step is to use the average price of your capital. Try it out and see how it turns out. Here, I will divide according to market developments so that you can consider it in the most comprehensive way.
This is a problem that makes the DCA method really shine. Now, let's say the plan with the capital of 10000$ above will buy in batches. Divide the capital into 4 times, so use $ 2500 for each installment.
Proceed to buy bitcoin at 8000, 6000, 5000, 3000. So after 4 such purchases the number of Bitcoins you hold is 2.0625 BTC. After that BTC returns to the upside, you will calculate profit and loss at the prices if you sell as shown in the table below:
- SELL at 4000$ = Take Profit -1750$
- SELL at 10000$ = Take Profit 10625$
- SELL at 12000$ = Take Profit 14750$
Do you see that if the expectations are right, the profit will be huge. When bitcoin fell, you increased your holdings more than you could buy once. Investment capital increased as BTC price increased with a total profit of ~1.5 times when selling at $12000.
When the market moves sideways for a year, for example, the price moves in a narrow range. You can buy bitcoin in 4 batches at the prices 8000, 7500, 7000, 6000. With these buying prices you will buy 0.877976 BTC.
You can see it's similar to a one-time purchase with all capital, right?
The market can move sideways, up and down. But end up where they started in the long run. However, you will never be able to accurately predict where the market is headed.
If bitcoin had moved even lower, rather than higher, the price average would have allowed for even bigger profits. This is where you make sure you have long-term profits, not just immediate ones.
In this last problem, also divide the capital of 10000$ into four installments for 5000, 6500, 7000, 8000. So after 4 purchases you have 1.55 BTC. When the price increases, you have the profit and loss in the following table:
- SELL at 4000$ = Take Profit -3800$
- SELL at 6000$ = Take Profit -700$
- SELL at 8000$ = Take Profit 2400$
This is a problem where DCA performs a bit poorly, at least in the short term. Bitcoin rallied higher and then continued higher. Therefore, price averaging does not help you maximize your profits. This one involves buying the whole thing in one go.
But unless you are making short term profits, this is a rare scenario in life. Bitcoin can evaporate, kkk. So, if you are investing for the long term, it is advisable to spread the capital in the trades. Even if that means you have to pay more at a certain price.
Is the price averaging strategy really good?
In general, the price averaging strategy offers three main benefits that can lead to better returns: Avoiding market fomo, avoiding market confusion, Long term investment thinking.
Because investors often fluctuate between fear and greed. They tend to make emotional trading decisions when the market reverses.
However, if you use DCA, you will buy when people are selling in fear (green quit, red watch, kkk).
Get a good price and set yourself up for a long profit. Markets tend to move up over time, and averaging prices can help you realize that a bear market is a great long-term opportunity. Instead of being afraid of things.
Limitations of the average DCA method
The first, perhaps the most discussed, is the modest profit. More frequent purchases increase transaction costs. However, with exchanges charging less transaction fees, this cost becomes more manageable.
Furthermore, if you are investing for the long term, the fees will become very small compared to your overall portfolio since you are buying for long term investment purposes. Binance is my top choice because of its diverse ecosystem and reasonable fee schedule.
Second, you can forego the profit you would have earned if you had invested in a one-time purchase and the property you purchased appreciates in value.
However, the success of trading largely depends on identifying the market correctly when predicting the short-term movement of an asset class. This is done by famous and good analysts.
DCA or price averaging strategy can be an effective way to manage risk when investing in assets like stocks, cryptocurrencies… I will walk you through how it works and its pros and cons. for easy understanding.
When considering investment, if you have a large amount of money in hand ready to invest. DCA is a method that can be suitable for both experienced and new investors to reduce the risk of seeing how their investments decline in value.[/I]
What is DCA?
- DCA (price averaging strategy) is a method of breaking down capital to invest in a fixed and more frequent way over a long period of time.
- This is a smart investment strategy. However, you must not confuse it with the fact that you bottom out the price of an asset when it drops deep to buy at a good price.
- DCA is really good if you correctly predict the trend by analyzing the market. And of course, the price averaging strategy must involve technical analysis or specifically instrument indicators such as MA, MACD, Bollinger bands, Elliott waves, etc.
Bitcoin problem using DCA
Now do a math on Bitcoin investment for you to visualize.[/I]
- Problem 1: Buy Bitcoin once with all assets
This is the case I think is mostly true for newcomers to the market. For example, you have 10000$ and buy it all with bitcoins for 8000$. You get 1.25 BTC.
Then Bitcoin achieves the gain/loss that you want to sell, then we will have a profit/loss table with the selling prices as follows:
- SELL at 6000$ = Take Profit -2000$
- SELL at 12000$ = Take Profit 2000$
- SELL at 14000$ = Take Profit 4000$
This is a basic math problem. The next step is to use the average price of your capital. Try it out and see how it turns out. Here, I will divide according to market developments so that you can consider it in the most comprehensive way.
- Problem 2: DCA in a bear market
This is a problem that makes the DCA method really shine. Now, let's say the plan with the capital of 10000$ above will buy in batches. Divide the capital into 4 times, so use $ 2500 for each installment.
Proceed to buy bitcoin at 8000, 6000, 5000, 3000. So after 4 such purchases the number of Bitcoins you hold is 2.0625 BTC. After that BTC returns to the upside, you will calculate profit and loss at the prices if you sell as shown in the table below:
- SELL at 4000$ = Take Profit -1750$
- SELL at 10000$ = Take Profit 10625$
- SELL at 12000$ = Take Profit 14750$
Do you see that if the expectations are right, the profit will be huge. When bitcoin fell, you increased your holdings more than you could buy once. Investment capital increased as BTC price increased with a total profit of ~1.5 times when selling at $12000.
- Problem 3: DCA in a sideways market
When the market moves sideways for a year, for example, the price moves in a narrow range. You can buy bitcoin in 4 batches at the prices 8000, 7500, 7000, 6000. With these buying prices you will buy 0.877976 BTC.
You can see it's similar to a one-time purchase with all capital, right?
The market can move sideways, up and down. But end up where they started in the long run. However, you will never be able to accurately predict where the market is headed.
If bitcoin had moved even lower, rather than higher, the price average would have allowed for even bigger profits. This is where you make sure you have long-term profits, not just immediate ones.
- Problem 4: DCA in a rising market
In this last problem, also divide the capital of 10000$ into four installments for 5000, 6500, 7000, 8000. So after 4 purchases you have 1.55 BTC. When the price increases, you have the profit and loss in the following table:
- SELL at 4000$ = Take Profit -3800$
- SELL at 6000$ = Take Profit -700$
- SELL at 8000$ = Take Profit 2400$
This is a problem where DCA performs a bit poorly, at least in the short term. Bitcoin rallied higher and then continued higher. Therefore, price averaging does not help you maximize your profits. This one involves buying the whole thing in one go.
But unless you are making short term profits, this is a rare scenario in life. Bitcoin can evaporate, kkk. So, if you are investing for the long term, it is advisable to spread the capital in the trades. Even if that means you have to pay more at a certain price.
Is the price averaging strategy really good?
In general, the price averaging strategy offers three main benefits that can lead to better returns: Avoiding market fomo, avoiding market confusion, Long term investment thinking.
Because investors often fluctuate between fear and greed. They tend to make emotional trading decisions when the market reverses.
However, if you use DCA, you will buy when people are selling in fear (green quit, red watch, kkk).
Get a good price and set yourself up for a long profit. Markets tend to move up over time, and averaging prices can help you realize that a bear market is a great long-term opportunity. Instead of being afraid of things.
Limitations of the average DCA method
The first, perhaps the most discussed, is the modest profit. More frequent purchases increase transaction costs. However, with exchanges charging less transaction fees, this cost becomes more manageable.
Furthermore, if you are investing for the long term, the fees will become very small compared to your overall portfolio since you are buying for long term investment purposes. Binance is my top choice because of its diverse ecosystem and reasonable fee schedule.
Second, you can forego the profit you would have earned if you had invested in a one-time purchase and the property you purchased appreciates in value.
However, the success of trading largely depends on identifying the market correctly when predicting the short-term movement of an asset class. This is done by famous and good analysts.
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