How Does the DCA Strategy Work?


DCA (Dollar Cost Averaging), a concept taken from Wall Street, is a practice where the buying price or cost of a cryptocurrency is averaged by increasing your investment over time.

The idea being that you will buy the same amount of cryptocurrency incrementally over time regardless of the market price. Eventually, the cost will decrease over time and you will see an average buy price.

The overall goal is to take advantage of a market downturn without the risk of major capital investment all in one go. Essentially, you are offsetting any negative effect of your investment. It has lower risk with equal rewards but you can still benefit in the long-term giving you a more sensible and level-headed road to profit.

If you are a beginner at investing, this strategy can help as an introductory approach. So how would it work exactly? As an example, take $100 and invest this amount for six months. If market prices at the end of each month amounted to $10, $9, $8, $7, $6, and $5, the average price per coin would be $7.50 If you invested everything during the first month, you would have paid $10 per coin.

DCA & Cryptocurrency

Cryptocurrency is known to be more volatile than normal stocks. Remember that cryptocurrency is relatively new and it is known to have had major swings in terms of varying market value. As a result, using a DCA approach would be a safer bet in terms of crypto unpredictability. With all the expertise in the world for investing, there is no way to predict what way a market will swing.

Trading cryptocurrencies with DCA in an automated way is possible with Wunderbit Trading. Platform support largest crypto exchanges and allows to use DCA in both manual trading from the terminal, as well as a feature for trading bots.

Any Drawbacks?

Many trading platforms charge for transactions so you may end up paying more with a dollar-cost averaging strategy. However, when you look at this over time, depending on the length of time over which you choose to invest, the cost will probably be relatively small.

There is also a risk that you may lose out on a large gain if market prices change and you were to invest a lump sum. If you are familiar with investing, however, you will know that there is never a concrete way to predict how a market will react. Dollar-cost averaging is a safer way to invest and allows you to take advantage of any market downturns. In this case, slow and steady really does win the race.