Time and time again, especially when the cryptocurrency markets are volatile, there are anecdotal tales of investors buying into a project, only to see the value drop like a stone instantly. Attempting to “buy the dip” has been compared to trying to catch a falling knife, and quite rightly. By investing your whole allocation of funds in one swift action, you leave yourself open to large losses and a battle to break even or push into a profit.
The investment strategy that can assist by taking the risks of daily or even hourly fluctuations out of the equation is Dollar Cost Averaging (DCA). Dollar Cost Averaging is a clever investment strategy whereby the investor divides up the total amount they wish to invest into a project, and buys the assets gradually over a prolonged period of time. This removes the impact of the ever-volatile cryptocurrency markets and simplifies the thought process required in “timing the market”.
By practising Dollar Cost Averaging there is also the coincidental benefit of removing the effects of on your investment decision making. All too many times when an asset is growing rapidly, investors flock to buy as much as they can possibly afford, skipping the due diligence and educated reasoning behind a purchase. If an investor sticks to the DCA plan the current price would be inconsequential, as the timing of the next purchase would be pre-determined.
Removing human emotion from an investment decision is ultimately a sensible move. If the project has been thoroughly researched using all tools at your disposal, then the macro-movements on the chart should not influence your decision to invest. Having a pre-determined and solid plan to your investments will ultimately bear fruitful gains, as long as the eventual price achieved is higher than the average of purchases made. In an ecosystem where daily movements of up to 20% are not unheard of, attempting to time a purchase to perfection is simply too high a risk to take.
Cryptocurrency is inherently volatile, and no investment can be guaranteed. No investor should ever invest more than they can afford, but by following the above strategy you will give yourself every chance of success.
