Once you have decided on the coin, you need an easy yet effective strategy to carry out your trades. In this article, I'll explain the TDCA strategy in simple terms and show you how to use it investing in the crypto coin $BNB .
What is Tweaked-Dollar-Cost Averaging (TDCA)?
Dollar Cost Averaging (DCA) is an investment strategy where you invest a fixed amount of money into an asset at regular intervals, regardless of its price. Instead of trying to time the market, you spread your investments over time. This reduces the impact of market volatility and lowers the risk of making poor investment decisions based on emotions.
As in spot trading, you buy low and sell high to make profits. So unlike traditional DCA, in TDCA, you will buy only when the market value is the same as one of your previous cost values or lower.
How Does TDCA Work?
Let’s say you have $50 and want to invest in $BNB . Instead of investing the lump sum of $50 at once, you’ll split your investment into 5 equal amounts of $10, buying at different times.
This means you’ll be purchasing BNB at different prices, which could help you avoid buying when the price is high and potentially benefit from buying when the price drops.
The profit in comparison to the traditional DCA is more, as can be seen in the calculations below.
As can be seen, TDCA outperforms DCA.
Is Buying in the Red Important for TDCA?
One of the key advantages of DCA is that it takes advantage of market dips. When prices are low (in the red), your fixed investment amount buys more of the asset. This lowers your average purchase price over time. However, DCA doesn’t rely solely on buying in the red. It works because it smooths out the impact of volatility, whether prices are rising or falling.
But as shown in the example above, buying tweaked-DCA allowed you to accumulate more BNB, which contributed to increased overall profit. Buying in the red and buying lower enhances your returns.
Tweaked DCA: Ideal for Beginners?
Reduced Risk: By spreading your investment over time, you reduce the risk of buying all your assets at a higher price.
Almost Perfect Entry: If you're a beginner trader who isn’t comfortable with trying to pick the “perfect” entry points, DCA removes that decision-making process. You invest regularly when price is the same or lesser than the previous investment.
Relaxed Trading: If your goal is to accumulate an asset for the long term (Swing Trading), DCA helps ensure that you are building a position steadily, without stressing over short-term market movements.
Works in Volatile Markets: Cryptocurrencies are known for their price volatility. DCA helps you take advantage of these price fluctuations without stressing about market timing.
Trade smart! Happy investing!