Crypto assets are a high-risk investment, and trading them without a plan in place can often lead to a loss of invested capital. While most analysts would agree there is no “perfect” trading strategy, there are three well-known methods that are well suited to beginner traders.
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This content is for informational purposes only and should not be construed as investment advice.
1. Dollar cost averaging (DCA)
Dollar cost averaging is a popular and well-tested trading strategy that works best when done over longer periods of time. The concept is simple. Instead of investing all your money in a particular cryptocurrency at once you divide it into small amounts, choose a particular time and day of the week and only buy at those times.
Example: Bob has $10,000 he wants to invest in bitcoin. Instead of spending the full amount in one go, he decides to use the DCA strategy and divide his $10,000 amount into 20 lots of $500. He then chooses a particular day of the week and time to buy bitcoin – let’s say Monday at 12:00 local time. Over the next 20 weeks, Bob systematically buys $500 worth of bitcoin every Monday at midday until he has invested his entire $10,000 amount.
Buying at regular intervals like this over a long period of time helps to reduce the impact of market volatility – when prices rise and fall sharply – and means, on average, Bob will likely get more bitcoin for his money than if he had spent all his money at once.
DCABTC, a bitcoin-focused DCA calculator, illustrates this in greater detail.
Had you bought $150 of bitcoin once every Monday from Jan. 1, 2018, you would’ve spent $23,550 overall and have 3.04 bitcoin ($147,307 at press time.) Whereas, if you’d spent $23,550 on bitcoin on Jan. 1, 2018, you would’ve ended up with 1.69 bitcoin ($81,779 at press time.)
Another reason why dollar cost averaging is such a good crypto trading method for beginners is that the whole process can be fully automated via a number of different trading bot services, such as CryptoHopper, Coinrule or 3Commas. This means all you need to do is deposit funds, tell the trading bot what you want to trade and when to trade it, and let it do all the hard work for you.
If you opt to do the DCA strategy manually – buying the crypto yourself on an exchange at set times– you can improve your overall results by adding one simple rule: only buy the particular crypto asset at the set intervals when prices are in the red. This means when the price of an asset is lower than it was 24 hours ago. You can find live price data on the leading 20 crypto assets on CoinDesk’s website.