Changes in the price of cryptocurrencies, specifically Bitcoin, are usually daily; on some days, we see how it increases, and on others, how it decreases radically; these variations are generally related to the characteristic volatility of this type of digital asset. Whether you are a seasoned trader or just starting, biti-codes.io can make your cryptocurrency trading much easier.
Volatility often puts investors in a position where the fear of losing everything and uncertainty can make them decide to take them out of the crypto market abruptly.
On many occasions, it is complex to define the perfect moment to buy or sell cryptocurrencies due to price variations. The ideal strategy could be to buy low to sell high, but it is not always time.
Experienced investors often indicate that finding the ideal entry point requires in-depth analysis, which leads to using statistical tools and financial indicators that can make the analysis an efficient task.
There, many investors recently, faced with a quite convulsive cryptographic market, tend to choose the dollar value averaging strategy to guide their operations with cryptocurrencies and obtain positive results.
What does the Dollar Cost Averaging strategy refer to?
This financial strategy is usually used by novices and professionals of crypto investments based on a long term, where the purchase of crypto assets, in the case of Bitcoin, is carried out with a fixed amount in small amounts where purchases are made periodically.
To see it practically, it could be exemplified as follows: an investor wants to buy Bitcoin but does not have the total amount, so he decides to acquire said digital financial asset in installments, say an amount of $600; this investment will be made prolonged form until reaching the desired total to invest.
The investment strategies are usually adapted to the needs and objectives of the investors, which are the ones that limit the duration of the exchange operations.
The DCA (Dollar Cost Average) is one of the most used tools for buying Bitcoin. However, it is not an exclusive method for this digital currency; it is also often used in the traditional financial market in investments in the stock market.
The effectiveness and efficiency of this type of financial tool are directly linked to the crypto market’s development.
Where the initial price of Bitcoin and the amount that has been decided to invest periodically are considered, when using this method, it must be clear that it is in the long term that deposits of money in dollars can be multiplied after an upward trend, benefiting investors.
To continue with this investment method, investments and their growth should be evaluated monthly to achieve profitable diversification in the investment portfolio.
A downtrend can lead investors to sell their Bitcoin units if the price decreases significantly. When the scenario is adverse in any investment, one should choose to at least recover the capital invested.
The right time to use it
The application of this investment method is the central aspect to consider, which is why the most appropriate way to use this type of tool is the monthly fixed investment. Private workers and investors on a smaller scale often use this resource.
To operate with this type of strategy, it is essential to establish an investment plan where risk management is necessary.
The first step in using this instrument is to select the digital currency with which the investor feels comfortable and believes can multiply its value in the future.
In the case of this method, investors usually take Bitcoin or Ethereum as the reference cryptocurrency because they are the most stable and profitable cryptographic projects.
The second step is to evaluate the frequency with which the investor will make his money contributions to invest, in addition to considering whether the investments will be made manually or automatically; in the second option, the exchange platforms are involved.
The third step is to consider the amount of capital you want to invest in establishing the limit of the global investment.
The methods selected by investors usually have an intrinsic value for the user, where all the aspects and elements surrounding the digital financial market must be considered.
Crypto investment decisions are not usually taken lightly; they require in-depth analysis.