Dollar-cost averaging (DCA) is a long-term investment strategy where you regularly buy an asset with a certain amount over a period of time regardless of the price.
The idea of DCA is to reduce the impact of volatility - to take out the factor of timing.
Is DCA For Me?
The timing of the market is really difficult, if not almost impossible. Either way, it's going to take a lot of your valuable time to follow the market and study the trends. Also, in the worst-case scenario, you would have bought an asset with the whole amount you are about to invest believing that is the right entry point but instead that was the peak.
With DCA you are never "all-in" at the highest price and if the downtrend should continue, and you stick with DCA, you should make a profit when the price recovers.
My personal opinion is that on the mental side, dollar-cost averaging can be a somewhat stress-relieving approach. There was a time when I spend days, weeks, and months staring at those Japanese candles. My sleep was often interrupted by the alarms I had set up notifying me of the sudden market changes.
Even though there were some minor victories, the whole lifestyle is quite consuming, and to be honest, I don't think it's worth it.
Do The Math
So is dollar-cost averaging worth it? It's hard to say but we can do calculations to find out if it would have been worth it. By using this calculator for example we can compare one-time buy to DCA strategy with different time frames and purchase amounts.
My (sort of) DCA strategy
At the moment I am sticking up with this strategy to accumulate more HIVE through my version of DCA:
- I make sure that I have enough of both HIVE and HBD liquid
- If the price of HIVE is falling I make one or two buys per day with a fixed amount of HBD
- Likewise, if it's going up, I sell with the exact amount of HIVE I got from the buy. Now I should have more HBD than when I started.
- If the price falls, I buy HIVE again but now with that increased amount of HBD, leading to more Hive.
So, by repeating this I should be getting more HIVE and more HBD. You could say I'm kind of DCAing them both. This sort of strategy is sometimes referred to as scalping or swing trading. Maybe there is a bit of both in it.
The main difference compared to "traditional" DCA is that I'm not automatically and blindly buying an asset daily but instead I'm still following the trends and making decisions based on that.
Things to consider:
- I'm doing this on Hive internal market(using PeakD) so there are no fees. Note that if you should try this on some trading platform of an exchange with small amounts, the trading fees would probably take a major slice out of your profits.
- Keep an eye on the HBD price and compare it to the HIVE price. This is pretty basic stuff but you would of course get more HIVE with HBD when it's above $1 compared to it being at $0.98.
Conclusion
In my opinion, dollar-cost averaging is the best approach for the crypto-curious people taking that first leap. It's perhaps the safest way. It does require consistency and planning ahead since it's a long-term strategy and the real benefits can be seen years from now.
You might argue that my DCA version is not real DCAing and you would probably be right since there is still a timing factor involved. Yet, there are some elements of DCA to it and that's where the idea of making a trade daily came from.
There aren't really downsides to DCA if you don't count the fact that you could make a huge buy at the very bottom. The thing is, it's really hard to find the bottom of the crypto sea.
Thank you for reading!
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