What is DCA? DCA steps that will help you win the crypto market

Investment strategies are numerous especially in the world of cryptocurrency. People have different strategies which they used while investing in cryptocurrency but today I will like to share with you all a common strategy yet very profitable strategy.

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Many people may have heard about this strategy before but I believe many don't have sufficient knowledge about it so this article of mine today is going to enlighten you and then educate you on what and how you can effectively use this strategy in your crypto journey, without further ado, let's go straight into the discussion.

Today I want to introduce you all to an investment strategy called the DCA this means Dollar-Cost Average. It is an investment strategy that is very profitable and I will explain to you how it works in the paragraph below.

Introduction to Dollar-Cost Average (DCA)

Dollar-Cost Average (DCA) is an investment strategy where investors are charged with the responsibility of investing a specific amount of money in a particular investment or crypto asset in a regular intervals.

This means that if you are to use this method of investment, you don't need to put in all your money in an investment at once, you will need to regularly put in a specific amount based on interval which can be weekly, monthly or yearly.

If for instance you have chosent to invest in Steem token usiny the Dollar-Cast Average (DCA) strategy, you may have plans as follows, you may want to be purchasing the Steem asset every month for $10. This means if you purchase the asset in this month for $10, you will still purchase another next month for same $10.

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While using this strategy, what is most important to take into consideration is the interval i.e the date you will always make your purchase i.e if it is every 1st of the month, you must ensure you make your purchase on the first of every month and also if you are to be using $10 monthly, you must remain consistent using that amount.

Crypto asset fluctuate and the price you bought in the past month may not be thesame when you are buying in the new month but you don't consider that while dealing with the Dollar-Cast Average (DCA) strategy.

So using this method, investors buy the asset no matter the price because they have already budgeted for it. This helps them to spread their risk thereby creating an average price overtime in the market. Let's consider the simple formula to calculate Dollar-Cast Average (DCA).

To calculate Dollar-Cast Average (DCA)

Average purchase price = (Total investment value at each purchase) / (Total quantity of Coins/Tokens purchased)

Like I have shared above, in the instance, if you want to be investing just $10 monthly in a coin, you will do that every month no matter the price of the coin. Doing it regularly and at all times will help you to accumulate that coin over time.

Forms of Dollar-Cast Average (DCA)

There are various forms of Dollar-Cast Average (DCA) and below I will be discussing them all one after the other. Pay attention and then select the form you wish to work with.

Fixed Amount Investing: As I have earlier explained, this involve investing a fixed amount on the asset in an interval be it weekly, monthly or quarterly regardless of the asset price at the time of the investment. So if you are investing $10 you continue doing that all through.

Value-Based Investing: In the value based forms, here investors watch and monitor the market. Here if the price of the assets drops, the investors buys more of the tokens at the time they are making their purchase and if the price raise, they buy a lesser quantity when they are making their purchase.

Buying Fixed Amounts on Dips: Similarly to the explanation I have given in the above paragraph, here investors only make purchase when the price goes below a certain threshold so it allows investor to buy more when the price is low and then buy little when the price is high as well.

Random Investing: Here in this strategy, the investors buy their assets at anytime when theu feel that the price is favourable to them. They don't have a fixed date to go into the market to make their purchase they will just enter and then buy if they feel that the market is okay for them.

The four listed forms of Dollar-Cost Average (DCA) all have it's advantages and disadvantages hence as an investor, your duty or priority is to check which among is much better for you to use in your investment.

Implementing Dollar-Cost Average (DCA) Effectively In Crypto Investment

To implement Dollar-Cost Average (DCA) effectively in a crypto investment and make profit in a long time while reducing risk. So the steps one need to take into consideration to effectively use this strategy are as follows

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Pick an asset: In the world of cryptocurrency today, it is difficult to know the project that will do well in a long term hence in this part you will need to DYOR and then select a cryptocurrency which you believe will do well in a long time.

Ensure you research very well about the asset such as the founder, the team behind the project, the use case and many more. This will help you to know if the project has a lasting life span or it will fold anytime soon.

Interval and amount of investment: Here you must have an interval which you will always use for your investment. You can choose to remain consistent for a weekly, monthly quarterly or yearly investment and also have a fixed amount you will always use while investing.

Having a buying schedule: You must have a buying schedule as I have earlier explained above. If you are buying every 1st day of the month then you have to maintain it and always do so without skipping your schedule to avoid overlapping.

Execute and record transaction: You can execute your transactions of buying the assets from any exchange you are using such as Binance, Bybit etc also you keep track as a means of record the purchase you made, the amount used, the quantity of the asset you purchase and other information within that time.

Stick to plan and use proper risk management: You must try to stick to your plans in the market regardless of how the market fluctuations is. If you do this, you will avoid having BP and you won't panic no matter where the market is moving.

In the same way, you must ensure you keep your eyes on the market to minimise loss and maximise profit. If the market goes below your expected threshold, please opt out of the trade to cut down the losses and in thesame way if the market goes up, you should have a take profit level where you want the asset to hit once it hits, please remove your profit and don't be greedy.

Advantages and Disadvantages of Dollar-Cost Average (DCA)

As you all know, everything that has an advantage also has a disadvantage today we will be looking at the pros and the cons of the Dollar-Cost Average (DCA). So let's start with the pros before moving to the cons.

Advantages Dollar-Cost Average (DCA)

Reduction of risk: Since we are investing small amount on interval basis, your entire finances won't be subjected to the risk of Liquidation because you are only investing some portion of your asset within an interval.

Doesn't require technical analysis: Using the Dollar-Cost Average (DCA) strategy for an investment doesn't need a technical knowledge since you are just buying your asset at a specific amount and in a given interval.

Financial planning: Here, the investors have more time to plan his or her finances since the investment is a long term investment. Also investors will be able to accumulate a lot and then use it when the time is right.

Disadvantages Dollar-Cost Average (DCA)

Missing opportunities: There are lots of opportunities that someone using this method may miss because they have there set down rules to only purchase at a given time and with certain amount. When prices drops extremely it could have been a perfect opportunity but since their strategy doesn't allow that they will miss out of opportunities.

Low yield: In most cases, the yields we get while using this strategy are low because we are suppose to opt out of the market with the little profit made but instead we keep accumulating and compounding.

Conclusion

Dollar-Cost Average (DCA), is a nice strategy which anyone within the crypto space will wan to try because it doesn't requires much knowledge. Here all you need is to have some basic knowledge of the said asset you want invest in and then you set your goal or target and you keep pumping money based on your schedule interval.

You will be shocked and surprise to see where your portfolio will be in no distance time because of the consistency you put in the investment. Another thing is that you must ensure not to focus on just one asset, you should always think of diversifying your asset while using this strategy, this will help you to minimise loss and maximise profit.

Finally, I want to thank you all for reading through my post today. If you have any questions or contributions, please do well to use the comment section of this post. See you all in my next publication.

Disclaimer: ^{This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your research and consult a financial advisor.}