DOLLAR COST AVERAGING VS ACCEPTING A HIGHER POSSIBILITY OF LOSSES.
Hello reader, I have added two similar images of the designs I wanted to use for this post because I couldn’t decide on which one is best suiting.
I had my friends vote on it and it was a tie so here we are. I’d love to know which one you prefer.
Dollar cost averaging is one of the crypto terms that I find really cool to pronounce, I like the way it rolls off the tongue when you say it. It is also a term every newbie to crypto should be aware of.
MEANING OF DOLLAR COST AVERAGING.
To dollar cost average means to invest your money in bits over time; instead of putting in the whole chunk of money you wish to invest, you simple divide them into several segments and invest or trade them over a calculated period of time.
When you dollar cost average, you set aside an amount of money you’d like to trade, due to the volatile nature of crypto, the chances of the value of a coin rising or falling dramatically is highly probable. So fearing the risk of suffering a big loss to the uncertain outcome of the market, you can decide to allocate them in bits and put them in at intervals over the stretch of a set period of time. You have to create a schedule for the investment, and every month you put in a fixed amount regardless of the price of the token.
WHY DOLLAR COST AVERAGE?
This has an obvious advantage and a disadvantage too, one thing about fear of the unknown is the outcome could be the exact opposite of what your fear anticipated, so at the heart of risking a huge loss, also lies the possibility of missing out on more percentage interest.
DCA is more a strategy aimed towards reducing the risk of of making heavy investments, to save you the dilemma, confusion and fear of the unknown that could be keeping you from buying.
It makes you feel less hypertense(just made that up) about lumping the money in by making you invest the same money periodically, to keep you from going mad in case the market decides to move mad.
We must always remember that return is higher with an increased risk. For maximum returns, one must be willing to go for the big guns. With dollar cost averaging, you also stand the risk of losing out if the value continues to increase after your initial investment, because then you’d wish you had made a higher stake. You can’t be greedy with this, it’s the price you pay.
The upside of Dollar cost averaging works best when the prices are falling not during a bull run. For instance, if you set aside $2000 to invest, one token costs $10, so you decided to stretch the investment for a period of 4 months to put in $500 monthly. If the cost of each unit drops from $10 to $8 or $7 over the period of four months then technically, you stand to gain more bu continuing to buy $500 worth of token every month but if it does go higher after your first input then not so much.
CONCLUSION.
It is not easy to predict timing and market movements accurately at all times; DCA then becomes a safer way to approach the planet of crypto market trading. Choosing to allocate the unit cost in badges and following the investment schedule reduces volatility risk and; the fluctuations of the market value doesn’t affect your whole lump should there be a fall.
However, accepting a higher possibility of loss which is associated with being comfortable with the likely risks of investing lump sums; also has its own fair advantage. If the token continues to rise after the first quarter, then that’s more earnings for them and if things take a different turn then you already know how the story ends.
So, that’s pretty much it. Thank you for reading.
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