Dollar-Cost Averagers (DCAs) take smart risks. They rarely miss out on opportunities. And unlike holders, they’re not left out holding at the peak.
When dollar-cost averaging, you distribute risk on all buying points. Instead of buying $10K of Bitcoin, you buy $1K every month. It takes out the emotional investing, so you can profit from actual growth, rather than speculation.
“Successful investing takes time, discipline, and patience. No matter how great the talent or effort, some things just take time.” — Warren Buffet, Berkshire Hathaway Founder
DCAs may not be the smartest traders. But they don’t have to, because they’re not competing the same way. While reactive traders try to profit from hype, DCA traders buy regularly regardless of the market situation.
To avoid buying high, DCAs buy at the lowest point of the day, week, and month. A good time could be, say, September 15th on a Sunday after business hours. However, the “best time” is only temporary until more traders start to use it too.
Never Missing Out
DCA Traders (DCAs) don’t miss out on opportunities because they buy in all of them. Whether they miss out or not depends on whether they buy monthly, weekly, or daily.
Maybe they don’t catch as many details as day traders. But DCAs get better value for their time. Once they plan how to buy, they can set and forget it.
Investing Without Emotion
DCAs wouldn’t follow their plan if they didn’t have proof that it works. They know the best strategy is the one that you actually execute. So after they set it up, whatever it is, they don’t overthink it.
DCAs are used to buy low. They probably won’t fall for bear traps since they don’t respond to selling pressure. Which doesn’t mean it’s easy.
In essence, DCAs choose in advance how they want to trade. And the discipline of buying as planned also gives them the confidence to sell at the top (rather than hold).
Dollar-cost averaging is the most effective during long-term growth. So instead of looking at market size, DCAs instead invest in whatever projects have the most activity, both in the fundamentals and marketing.
Think of Ethereum, EOS, TheSandbox, Avalanche, Ripple, PolkaDot, HarmonyOne, Enjin. Most of these bring major updates every few months. It’s an opportunity to dollar-cost average and exit before the price tops.
It doesn’t take years to profit from DCA. The trader plans for the sale by looking at the closest updates. Ethereum 2.0., Cardano’s smart contracts, or (while writing this) PolkaDot’s Parachain Auctions.
Whatever the event is, DCAs start buying immediately, yet gradually.
DCAs don’t feel comfortable dealing with hundreds of fast decisions. Eventually, they make mistakes either by decision fatigue or overreacting to the news.
DCA traders know it’s not just about the profits, but the money you could lose. They divide their amount to reduce volatility, so they can avoid mistakes. It’s why risk managers often earn more than money-chasers.
Unlike holders, dollar-cost averagers have a defined trading plan. As soon as a coin trades above its average and profit goals, it can sell (at least) the initial amount and stay safe.
Once DCAs meet the goals, they set new ones, try another strategy, or look into new projects. Most traders never get this far, because they’re not clear on when to exit (even when it’s green).
Bad Timing Risk
Fixed strategies aren’t effective for very long. Trading is a competition game, and investors will copy whatever works better. Dollar-cost averaging is accepting that you will buy high sometimes.
For the chance of selling higher. But when?
Commonly, you would buy until your holdings appreciate by 50% to 100% (above your average). But while you’re accumulating, you also miss on sale opportunities. Price spikes that may take months to reach again.
While DCA is effective, that doesn’t mean it’s efficient.
First, DCA assumes that coins will appreciate in the long term. If now there’s a buying opportunity, doesn’t it make sense to buy a lump sum instead?
Divide your investment and you will also pay more fees.
DCA is great at reducing volatility. Which implies missing higher prices (market timing risk).
DCA isn’t risk-free. It removes certain risks (such as making mistakes, overreacting, missing out), while others are unavoidable. Only delayed.
The risk of buying at whatever best price you find on the scheduled day. The difference is, this risk doesn’t affect decisions (already taken).
How to play on your strengths as a DCA trader?
DCAs don’t always need to follow up on the market. They don’t respond to speculation/trader behavior, but instead to fundamentals and intrinsic growth. They invest because of the team, roadmap, and potential mass adoption.
DCAs know that, with enough time, the price will rebalance based on the fundamentals. The project’s value as a product. They make money because planning takes out the speculative component of trading.
Fundamental & Market Analysis
While high-frequency traders respond to market behavior, DCAs follow only their long-term plan. This isn’t just how they buy. It’s how they choose projects.
Because of their investing style, DCAs can make a lot of money from independent research. They free themselves from market emotion, so they can see clearly what’s overpriced and what has good entry.
They do this by analyzing the coin and then the overall market cycle.
It’s hard to know in crypto whether you’re right or wrong. Either way, you’re either too late or too early. Too often, traders change their strategy before they get the chance to prove it.
DCA investors aren’t necessarily right, and they still make profits. Because the only effective strategy is the one you execute. DCAs follow it with discipline while reactive traders change it the middle way.
What blind spots to watch out for as a DCA trader?
So many investors recommend dollar-cost averaging. Yet all seem to miss the second part of the trade. When do you make money?
You could sell all after it grows by 50%, sell little by little, or hold. The risk is, by the time you buy the last token, you don’t know what the price will look like. DCA assumes it will go up, but what if it doesn’t?
You might need to join the holder club. Who knows for how long.
To avoid missing out, DCAs split their investment into months/weeks. So the first months, most of their money stays in fiat. What’s the opportunity cost of having idle money for so long?
If DCAs bet on parabolic growth, there’s a good chance it happens before they buy the full amount. And since prices tend to increase, you can buy less and less crypto with that cash.
DCA traders can miss opportunities if they follow their plan to a T. It doesn’t make sense once you have enough data. A dollar-cost average based on dozens of purchases.
Suppose the investor buys $100 per week. If the coin dips by 50%-80%, DCAs would only spend 100$, rather than spending 200$. Or as much as possible.
If the coin goes up by 200–300%, DCAs may not want to sell because they’re waiting to make the last buy. So they miss the chance of selling on that spike.
With so many choices, how do you find the best crypto strategy? Whatever it is, it only works if you apply it. To do so, it has to match with how you think:
Dollar-cost averaging is effective when based on independent research. Whether you’re a beginner or a big trader, it’s the most recommended for volatile cryptocurrencies. So if you want to DCA for months, take your time defining the strategy (so you don’t regret it later).
DCAs should NOT keep the remaining funds in fiat. Ideally, DCA purchases will come from profits taken on other investments. But if you choose to hold idle money, consider bigger amounts (e.g., $1000 split into four payments instead of eight).
Once you have enough accumulated (~50%), you can be more flexible with your plan. If the coin falls way below your average, consider spending $150 instead of $100. And if it goes parabolic, it’s okay to take the sale opportunity.
You don’t need to hold until you buy the last coin.
When you play on your strengths and plan for weaknesses, you give yourself the best possible chance for success.
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