What is Price Average (DCA)?

Price averaging is an investment strategy that minimizes the risk of market volatility by dividing your capital into equal parts. We will then use these fractions to enter the market at various times. It can be every day, every week or every month, depending on the investor's decision.

Example: You have a goal to invest $5,000 in the cryptocurrency market, specifically buying Bitcoin. You can divide this amount into 100 equal parts. That is, each part is worth $50. Then you will start buying Bitcoin every day or every week with an investment of $50.


Pros and cons of price averaging?

The price averaging method will have certain benefits and limitations.

The biggest weakness is probably that we won't concentrate the capital at certain good times. Therefore, the profit will be less if we concentrate capital at the right time of the market going up. However, this limitation is also the strength of the price average method.

Determining when to buy is perhaps the hardest and most desirable thing to do in the financial markets. However, most retail investors fall into the peak buying situation. The time when we think it's good to buy is usually the top or areas near the top. Because our judgments and decisions are influenced by many things and the biggest one is emotions. Using price averaging helps us avoid falling into this psychological trap.

Second, the DCA method helps us to reduce the risk of the market. For example, you expect the market to rise in the future but don't know when. And maybe the market will correct many more spans before increasing. This we cannot know.

So what should we do? When is the right time to buy?

Instead of trying to determine the right time to buy, let's use price averages. Whether the price falls or goes up, you will still buy in with the amount that we have clearly specified.


When the market goes down, buying such price average helps us to minimize losses. And the bull market appears, we will start to profit. Because our money has distributed at lower prices.

Why use price averages when investing in cryptocurrencies?

Buying price average helps us avoid FOMO, FUD situation and reduce risk. It should be noted that price averaging is only for individuals who have confidence in the future growth of the cryptocurrency market.

Looking at the past, the cryptocurrency market, specifically Bitcoin, fluctuates in cycles. Strong increase, decrease sharply and then continue to increase sharply. And the return on crypto investment is in times and tens of times if we buy at a fair price.

So with small amount we can make a lot of money. This is also the most attractive of this market.

Looking at the actual data, buying the average price is almost always profitable for the investor. You can use the Bitcoin Savings Calculator tool to verify this.
If we spend $20 per week, which is not a huge amount, to buy Bitcoin from the beginning of 2017, how much money do we have now?

We will have $6,440 for a total of $2,900. That means we have doubled the account.

Even if we start investing at the riskiest time at the end of 2017, we are still profitable up to now. The investment value is $2,408 and the amount we spent $1,940, the return is about 25%.

Conclude

Price Averaging or DCA is an effective investment method in the cryptocurrency market. However, you must note that this method is only applicable to investors who have a positive assessment of the market's future in the long term.

Besides, in order for our investment to have a better return, it is important to determine when to start buying the average price. When the market drops quite a bit, it would be a good time to buy price averages. And when the market has rallied, we should consider carefully.