What is Dollar Cost Averaging?

Emotion plays a big role in any investors’ decision-making…

In the world of Bitcoin, this is no exception and dollar cost averaging (DCA) could help you. In fact, due to bitcoin’s volatile price, emotions are only heightened. Regardless of whether you are an experienced or first time bitcoin investor. Neither can expect to be immune to the irrational investment decisions that come with experiencing FOMO or reading the latest ‘breaking’ news stories.

One of two things is guaranteed to happen after you make a bitcoin purchase. The price either drops or rises. Sounds obvious, right?

When it drops you will question your purchase. Asking yourself if you made the right choice. Fearing how much money you have lost. Deliberating whether you should sell now to cut your losses and angry that you could have bought more bitcoin for a lower price had you waited.

Or if the price rises, excellent, you’ve made money, but questions arise in your mind about whether you should sell now for a profit, or if you should have bought more?

You don’t have to put yourself through this

All in all, investing in bitcoin can be an emotional rollercoaster. And the rollercoaster sickness is magnified the more you invest in one go. However, you can avoid this feeling entirely by doing two things.

Bitcoin emotional rollercoaster

First, you need to learn about Bitcoin and understand it fundamentally to decide whether or not it is something worthy of your investment. This doesn’t mean you need to know everything about Bitcoin. You do need to put some time into understanding the values of Bitcoin. How it works, how to store it and what its future potential may be. We have some great book recommendations in the FastBitcoins library to help.

The second thing you can do is dollar cost average your bitcoin investment. This is a fancy way of saying you can make regular bitcoin purchases over a set period of time. The alternative being to buy a lump sum in one go.

How does dollar cost averaging work?

For example, if you wanted to buy £600 worth of bitcoin, you could  purchase it tomorrow as a lump sum, at whatever the price is at the time. Or using DCA, you could buy £20 a day, spread out over the whole month. Using the DCA method takes the volatility out of investing. It prevents you from trying to choose the best time to buy. More importantly it prevents you from falling victim to irrational purchasing decisions driven by emotions.

A historical issue with DCA was that you would have to log onto an exchange every day and make purchases manually. But thanks to our Auto Buy service, this is no longer the case.

You can dollar cost average with FastBitcoins

FastBitcoins users can simply open their account, ensure it is topped up with enough local currency and set an ‘Auto Buy’ rule. Users set the amount of bitcoin they want to buy and when they want the purchase to be made. You can set up Auto Buy to make purchases at any time, date or amount that suits you. Every time a purchase has been made for you, FastBitcoins will email you to confirm it. FastBitcoins will also remind you to withdraw your bitcoin to your own wallet.

Dollar cost averaging isn’t just a Bitcoin thing, the same approach would apply to other investments such as in precious metals or stocks. Timing when to buy an asset at its lowest, is an incredibly hard thing to do. DCA offers a strategy to avoid it completely, reduce risk and remove emotions from your investment.

Written by FastBitcoins_Dragon

Doing things at FastBitcoins. NGU enticed me here, learning made me hang around.

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