investors to develop a strategy that will not result in a one-time loss. Dollar Cost Averaging (DCA) is the strategy that has consistently yielded positive long-term results in both crypto and equity markets.
DCA works on the principle of regularly investing a predetermined amount of money (e.g. daily, weekly, bi-weekly or monthly) in a selected asset by adjusting the price of average purchase of the asset in order to reduce the impact of price volatility.
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The investor divides his funds into small sums which are distributed at regular times rather than making a single large purchase.
This means that if an investor wants to invest $30,000 in Bitcoin, for example, and he invests all of a sudden, if the price drops 20% the next day, he will have already suffered a net loss of 20%.
But if he buys $1000 worth of Bitcoins every month, regardless of the price, for a period of 30 months, his losses will be mitigated. And better, it is very likely to take advantage of a rise in Bitcoin over a period of 30 months or 2 and a half years.
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DCA is an ongoing process that runs for a fixed period of time and therefore requires time and commitment. Investors can overcome this problem by automating the DCA process by depositing the amount they wish to invest on a platform that offers periodic purchases in fixed sums. The platform purchases the asset on their behalf at the pre-determined price and intervals.
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How to apply the DCA method with the recurring purchase of cryptocurrencies?