Seeing the value of your portfolio fluctuating can keep you up at night or push you to sell when prices are low, especially in a fast moving market like cryptocurrency. Luckily, there are ways to mitigate that.
Use Dollar Cost Averaging to Handle Volatility
Dollar cost averaging (DCA) is a technique that aims to reduce the impact of market volatility by cutting up a big investment into several parts of equal value and staggering your entry over a longer period of time. For example, if you want to buy $1,000 worth of bitcoin cash you might elect to purchase $100 of BCH at the start of every month over a 10-month period. This way if the price goes down after you begin your entrance to the market, the next purchases will get you more cryptocurrency and if the market goes up over a period and then back down you will be less impacted because you bought part of your portfolio when prices were lower earlier.
Obviously such an investment strategy will result in weaker performances under some market conditions, such as if the price skyrockets tomorrow and stays at a high level or if it just constantly increases. However, it will also prevent you from losing a major chunk of your investment if the market crashes right after you made a big move, which is a fear many people share. It additionally mitigates the risk of you panic selling when the price suddenly falls 10% or so if you bought most of your coins when the price was half of that a year before and so on average each coin you hold is still more valuable than it cost you.
As for actual implementation of cryptocurrency investing with dollar cost averaging, you need to set a schedule for buying and stick to it. You can buy bitcoin cash with credit card here or in a peer-to-peer fashion with Local.Bitcoin.com. Some platforms also offer a way to do this automatically, such as setting up a recurring buy on Coinbase.
What do you think about dollar cost averaging? Share your thoughts in the comments section below.
Disclaimer: Price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
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