S4B Crypto Contest - Season 13

With the prayers of my well-wishers I'm doing great and so do I wish for you all, beautiful people. Today, I'll write on the topic " Dollar-cost averaging" organized by @waqarahmadshah Here is my view about the concerned topic.

DCA stands for Dollar-cost averaging. In crypto investing, it's a strategy used by investors to invest a portion of their investment at regular interval regardless of the price, performance or fluctuations of market or any assests. The crypo market is known for its volatility, and here DCA play the game and protect the capital of the investors. DCA helps investors to average out their buying price. An average trader who have not much knowledge of the technical analysis can use the DCA strategy. He/She can invest the amount without looking at the price of the assest, regardless of any time interval and can HODL for long-term.

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Unlike forex, the crypto market is always open and has many fluctuations but one thing is for sure that the market will always move in a cycle. If the market is making a higher high today, it may be moving in lower low the next day. The market always repeat its cycle. Seo that's where DCA can play a beneficial role. Which means that if you've bought an asset when it was up, you might get the chance to buy it again when it's dump which will lower the average buying price.

Let me explain it through a simple example;

Suppose you want to invest $100 in an asset with a price of $1, using DCA over 5 months. Here's an example:

Month 1:
Investment: $20
Price: $1
Units bought: 20

Month 2:
Investment: $20
Price: $0.8
Units bought: 25

Month 3:
Investment: $20
Price: $1.2
Units bought: 16.67

Month 4:
Investment: $20
Price: $0.9
Units bought: 22.22

Month 5:
Investment: $20
Price: $1.1
Units bought: 18.18

Total investment: $100
Total units bought: 102.07

Average cost per unit: $0.98
which means that you've bought each unit at a price of $0.98( less than initial buying price)

If the asset price goes up to $1.5, your total investment value would be:

102.07 units x $1.5 = $153.11

You've invested $100 and your investment is now worth $153.11, that's what you can do with DCA and that's the power of DCA!

DCA is an easy strategy and it can be very effective if the conditions favour you. Here's the conditions when it can be very effective:

01. Bear Market:
If you've invested in an asset and it's price is falling, you might stress up but it's the situation which can be useful and effective if you use that properly and timed it with the DCA. Buying more units at lower price will average out the cost of each unit.

02. Volatile Market:
Crypto market is highly volatile. DCA will help you not to invest all your amount at once. Many people become the victim of FOMO(fear of missing out) when the price is rising and they buy an asset which will fall again after sometime so if you've divided you're investment in parts, you're safe.

03. Long-term Gain:
The DCA is best strategy for HODLers. The market can show an immense growth over a long period of time with some insane returns.

04. Reduced Risk:
You've entered in a trade at the wrong time and the decision is not favouring you. No worries, DCA will rescue you. Enter the trade when the price falls, thereby averaging your purchase price.

05. Favouring Low Budget investors:
If you don't have much amount in your purse to invest at a time interval, DCA has solved your problem. Investing in parts will not be burden on you. You can do it from your salaries each month and that won't bother you.

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Meanwhile DCA has some positive impacts, there are some limitations of this strategy.

1. We do not consider the market trend and just take an entry.

2. You need to have patience as it is a long term commitment and will not favor the short term investors.

3. DCA may gave us a lower returns.

4. There's no guarantee that you'll always get a chnace to buy an asset with low price.

5. It's a bit time risky as you may entered the trade at the wrong time.

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Overall, DCA can be effective for an average trader who hasn't any knowledge of technical and fundamental analysis as he may not catch the perfect place of entry and exit as will as time. But for HODLers, this can be effective with some positive returns.

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In the end, I want to say that many people will be agree with me while few may not, this is what the difference of opinion is and that is what leads the world forward.

Thanks for being here!***

inviting @goodybest , @carlaisl ,and @reetuahlawat to take part in the contest.

Regards,
@jalil654