Dips offer prime entry points but buying each dip can cost you profits.
DCA strategy can boost your gains by 100-500%.
This wisdom should be paid, but I'm sharing it for free.
Unlock its full DCA potential like only 1% know how 🧵⬇️
Frequently, when Bitcoin's price dips slightly, altcoins tend to plunge even further, sparking anxiety among unprepared investors.
➜ In these instances, one of my preferred methods shines through - DCA strategy (dollar-cost averaging).
You've likely come across this strategy before, yet if you haven't put it into practice, this thread may inspire you to embrace it.
◢ What is DCA Strategy?
Dollar-cost averaging is an effective investment approach enabling gradual market exposure over an extended period.
By consistently purchasing a fixed amount of an asset, this strategy helps remove emotional decision-making from investments.
Instead of investing a lump sum at once, which could result in buying at the asset's highest point and subsequent losses if the price declines, dollar-cost averaging distributes risk over time.
◢ For instance:
Imagine you possess USD 10,000 and desire to invest in BTC.
Your options include purchasing USD 10,000 worth of BTC in one lump sum investment (LSI) or spreading out USD 10,000 over six months for regular investments.
➜ Hypothetically, if you commence investing on 1 March 2023, this is how your investment could progress by August 2023:
Based on the provided data, utilizing DCA could yield 0.3958 BTC from a USD 10,000 investment in 6 months.
For instance, comparing the average costs of both methods:
• DCA: USD 10,000 ÷ 0.3958 BTC = USD 25,265.29 per BTC
• Lump sum: USD 10,000 ÷ 0.3425 BTC = USD 29,197.08 per BTC
Overall, Dollar-Cost Averaging showed a 2.497% return, outperforming Lump Sum Investment which had a lower return of 1.75%. DCA can prove more beneficial than LSI, particularly since it grants more BTC in times of lower prices and less in times of higher values.
◢ DCA-OUT
DCA strategy can also be used to secure profits. Previously, I shared some of my profit-fixing strategies, and DCA-out is one of the techniques I utilize frequently.
➜ x.com/wacy_time1/status/171317...…
One effective way to secure profits when you're in the green on a trade is to gradually scale out by reducing a small portion of your position. This helps lock in profits while allowing the remaining portion to continue potentially gaining.
DCA Strategy appears simple and effective, but it's crucial to know when to use it.
Avoid using it when everything is on the rise and candles are becoming parabolic.
As mentioned earlier, periods of downturn like now are perfect for implementing the DCA strategy. You don't need to be a pro to recognize that purchasing an asset after significant drops (50-70%) is generally advantageous.
If the asset has strong fundamentals, it will likely recover; it's just a matter of time and market conditions.
Here's a clear message for you:
Don't stress about timing the market perfectly.
When you begin dollar-cost averaging, expect fluctuations and stay focused on your long-term goals. This strategy is key to success in building a robust asset base.
However, I have a useful suggestion to enhance the effectiveness of your DCA strategy.
Combining it with other strategies can improve the identification of optimal entry points.
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◢ Let's explore enhancing the effectiveness of DCA by adding the 9-EMA indicator into your approach.
➜ 9-EMA not only serves as a dynamic support/resistance level but also indicates the strength of the trend.
Typically, a bullish trend is indicated when the price is above the 1-day chart. Pullbacks often see prices clustering around this level, making it an attractive purchase area during uptrends and a point of resistance during downtrends.
A close below the 9-EMA could indicate the beginning of weakness, while breaking above the 9-EMA following periods of sideways or downward movement might signal underlying strength.
➜ Utilizing this indicator can enhance your asset analysis and assist you in managing your positions more effectively.
You can add it into TradingView at no cost.
◢ For example
Consider taking a glance at the $BTC chart and observing how this strategy has performed. (The yellow line represents the 9-EMA.)
Riding the 9-EMA signals an uptrend.
A downward slope in the 9-EMA indicates a downtrend.
◢ Sentiment
One key factor in deciding to use Dollar-Cost Averaging (DCA) is Sentiment.
Market sentiment is crucial.
In simple terms:
- Making a purchase at the peak of a bull market and then implementing DCA over 3 years is unwise when the market is bearish.
- However, starting to use the DCA strategy during a bear market can potentially lead to significant gains.
If you're new to the market, start by understanding its structure before implementing any strategies.
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◢ Potential drawbacks of DCA
Of course, there are no completely foolproof investment strategies, and dollar-cost averaging crypto can carry some disadvantages and risks.
Investing continuously in crypto at regular intervals could result in paying more for smaller amounts if the market spikes. This can work against DCA's purpose, potentially increasing your cost basis when multiple purchases happen after a significant surge.
Some traders prefer a lump-sum approach during market dips to aim for higher returns, but this method relies on accurately timing the market, a challenging task when facing competition from automated and institutional traders.
In summary, DCA is a widely employed strategy that can benefit both novices and experienced investors alike.
It's essential to apply it thoughtfully and not rely on it indiscriminately in all scenarios.
Assess, strategize, and execute.
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I hope you've found this thread helpful.
Follow me @wacy_time1 for more.
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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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