You may have heard the advice: "Buy when the price drops!" or "Just rely on dollar-cost averaging!" While these strategies can be effective, it is crucial to understand the underlying risks.
๐ Understanding Loss Recovery
When the value of an asset decreases, the required profit percentage to achieve breakeven increases disproportionately:
A 10% loss requires an 11% gain to recover.
A 50% loss requires a 100% gain.
A 90% loss requires a 900% gain.
This means that if your investment drops by 90%, it needs to increase tenfold to return to its original value.
๐ง The Psychological Trap
As your asset approaches its original purchase price after a significant drop, you may hear:
"Hold on tight! Real profits are coming!"
"Don't sell now; it's just the beginning!"
That said, consider this: your breakeven point could be a significant profit opportunity for someone else.
๐ Not all dips are opportunities
While buying during market dips can be profitable, it is essential to distinguish between temporary drops and long-term declines. Some assets may not recover due to fundamental issues. For instance, currencies like 1INCH and ICP have seen significant price declines and have not yet returned to their previous highs.
โ Key Takeaways
Dollar-cost averaging with caution: dollar-cost averaging works best with assets that have strong fundamentals and long-term potential.
Trend Assessment: Confirm
