When a particular asset approaches an All Time High, people start getting scared to buy because they don’t want to be trapped buying at the top. But sometimes you really don’t know what the future holds, let’s look at Solana for instance. Solana reached more than 4 All Time Highs this year. Imagine people that didn’t buy because they didn’t want to FOMO, am sure they would be regretting. So the best thing is find a strategy that works for you and stick to it.
DCA(Dollar Cost Averaging) is the act of dividing your money into different pieces and using those different pieces to buy an asset at a periodic purchase prices, this is done to fully utilize capital to get maximum amount of the asset at best prices during a volatile market. The DCA strategy can be used during the bull market and the bear market, it all depends on you. We are going to look at the different ways you can use the DCA strategy.
Let’s say coin A is $10 price and you have $100 to invest in this coin. But you don’t know if it’s at an all time high yet, you don’t want to buy the top and be stuck. This is during the bull run market, so lots of coins are approaching new all time highs but no one knows the direction of the market, no one knows if the coin’s price will keep going up, consolidate or decline. So what I usually do is divide my $100 into 4 places. I buy when it’s $10, wait for some time, if the price keeps going up, I buy when it’s probably $13, then buy the next one $15, buy the next one when it’s $18. After exhausting my $100 I then watch and wait for when to take profit. If we are calculating the price I entered we will have to calculate the median of the price $10 + $13 + $15 + $18 = 56/4 = $14. So my average entry point was at $14. So from what you can see am already in 28% profit if the price consolidates around $18. But if the price gets to $20 my profit will be 42%. So this means that my break even price will only be at $14. This is how I have successfully utilized the DCA strategy to get the best profit I can get during the bull market.
Now let’s look at it from the bear market or dip period angle. The market is on a dipping spree and you want to buy the dip but you want to utilize your capital to buy as much coins during the dip as possible, but we don’t know when the dip will end. This time around we are going to be making use of coin B with $100 capital. The price of coin B just dipped from $25 to $20. Remember you have divided your $100 into 4 pieces, giving you $25 per piece. You buy the first dip at $20, buy the second dip at $17, buy the third dip at $15 then buy the 4th dip at $13. If we want to calculate your median price entry point, we will have $20 + $17 + $15 + 13 = $65/4 = $16.25. Your average entry point is $16, this means that when the price bounces back to $16 you will be at break even. When it gets back to $20 of your initial entry point price you will be at 23% profit. If it gets back to $25 you will be at 53% profit.
Now if you understand this strategy and you use it, you will notice its effect on you. You just don’t maximize your best profit alone, it also helps you manage your mental or psychological health when investing, saves you the stress of always wondering if you entered at the best price entry. This will also help you reduce risk.
Remember Not A Financial Advice and Good luck