In Part 1, I sent you how to choose potential coins. In this Part 2, I will present you with an effective coin buying strategy that minimizes the risk of losing money. That is the averaging strategy (DCA). 👇
The DCA averaging strategy is used by many investors as a way to accumulate long-term assets, limiting price risks when trading frequently. This method is becoming increasingly popular, especially among new investors entering the market.
🪙 However, if you want to effectively apply DCA, investors need to understand the average pricing strategies below to create a safe strategy to protect their capital.
1️⃣- Averaging up
Averaging up is when an investor buys more shares at a higher price when they believe the stock has confirmed an upward trend. At this point, your average purchase price will be higher than initially, but in return, you will have greater profits if the coin rises sharply.
2️⃣- Averaging down
Averaging down is when an investor buys more coins at a lower price than the price they currently own. This will help you increase the amount of coins held while lowering the breakeven price. Therefore, if the coin enters a bullish phase, you will achieve a profit significantly higher than initially.
You should implement it when you are sure that the coin is only temporarily adjusting and will grow significantly in the future. However, averaging down is also very risky if you misidentify the coin's trend. It can cause you to lose more than your initial investment.
🪙- How to effectively apply the averaging strategy
DCA is an effective strategy for diversifying and minimizing risks. However, to apply it effectively, players need to implement it correctly. The steps to deploy DCA can be followed in 5 steps as follows:
💵- Step 1: Specifically determine the maximum loss you can accept, around 5 - 10%. This is a psychological preparation step in case the plan goes off course.
💵- Step 2: Calculate and determine the number of orders that suit your financial conditions.
💵- Step 3: Plan an appropriate capital allocation in each transaction.
💵 - Step 4: Plan your investments, determine the times for placing orders, taking profits, and cutting losses.
💵- Step 5: Choose the right time to carry out DCA.
🍀What should be noted when using the DCA averaging strategy🍀
To make the DCA strategy work effectively, investors need to pay attention to the following points:
Choose an appropriate investment portfolio: There are thousands of coin codes on the market, many types of currencies, and many types of cryptocurrencies; you cannot invest in all of them. Choose suitable names for your investment portfolio. However, do not choose too many coins; each portfolio should only have 4 - 5 types.
Monitor price fluctuations if you intend to buy more than the planned amount: You should not rush to buy more when you see a price downtrend or any other reason. Calculate the quantity and appropriate purchase price to avoid losses.
Do not overlook market developments: Investing in DCA does not completely eliminate the risks of market fluctuations. You should still pay attention to information and changes in the market to make appropriate adjustments.
You should not buy too much at one price level: When prices drop low, many people tend to seize the opportunity to buy more to get a good price. However, you cannot know how the market will fluctuate next. It is best to stick to your original DCA strategy.
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