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Understanding many principles, yet still not living life well. Investing is no exception: "buy at the bottom in a bear market, sell at the top in a bull market." Everyone understands this principle, but in reality, many people chase highs in a bull market and cut losses in a bear market. Some attempt to catch the absolute bottom in a bear market, perhaps a futile endeavor. Dollar-cost averaging (DCA) in a bear market may be more reliable, and this article explains why.
I've seen people trying to pinpoint the exact bottom time and time again, but historically, it's nearly impossible. We're often advised not to catch a "falling knife," but I believe this advice might have more drawbacks than benefits. Let me explain why "waiting for the bottom" might not be the best move.
Catching a falling knife can be understood as "trying to buy an asset when the price is rapidly falling." People often tell you not to do this; their suggestion is to "wait until the price hits bottom before increasing your holdings." However, in a bear market, this logic is not ideal.
Because in the world of cryptocurrencies, calling the bottom is extremely challenging.
If it were that easy, every investor from 2018 to 2020 would have made a fortune. The reality is, most people either lost interest in the market or waited a long time before starting to buy.
Predicting the bottom is as difficult as predicting the top. People think of 5,000 when it's at 15,000, just as they think of 100,000 when it's at a new high.
In March 2020, BTC plummeted from $8,000 to $3,700 in just two days. People were terrified, and most did not buy at that time. It's okay; it's human nature to re-enter the market when things become clearer, but doing nothing is also a form of loss.
BTC rising from $3,700 to $7,000: "It's just a dying struggle."
BTC rising to $10,000: "It will definitely fall back."
BTC rising to $15,000: "I haven't gotten on the train yet!"
In this scenario, you would miss out on a 300% profit because you are too fixated on "waiting for the bottom." That's the problem: many people never enter at the low point because they insist on waiting, but they FOMO in at higher prices.
Therefore, if your goal is to accumulate quality assets like BTC and ETH, adopting a dollar-cost averaging (DCA) approach can spread your average cost and avoid the guesswork of timing the bottom, ultimately helping you achieve your goal: accumulation.
I prefer to buy in during a downturn rather than an upswing.
Suppose you buy some BTC each week for five weeks at prices of $20,000, $17,500, $15,000, $12,500, and $10,000. Your average purchase price is now $15,000.
Did you catch the exact bottom? No, but you are accumulating your believed assets at historically favorable prices.
Personally, I consistently DCA into my chosen assets every week and plan to continue doing so in the foreseeable future. I've set up a strict DCA plan for the next six months, and I'll stick to it at all costs. Remember, failing to plan is planning to fail.
For example, when BTC is at $30,000, I tell myself I will start DCA at $20,000 and below.
Will the price continue to drop?
Probably, but I have a plan and intend to stick with it, regardless of market sentiment.
You must stick to your plan, choose an amount you invest regularly, and earn wages within the time frame to invest that amount. I set a minimum amount per week to make DCA more flexible so that I can buy more on days of extreme market conditions.
If you are a trader, waiting for a more timely entry can be beneficial. A few percentage points of fluctuation can make the difference between being liquidated and gaining massive profits.
The same argument can be made for riskier altcoins. DCAing applies only to assets you plan to hold long-term.
If you are a professional trader, you can choose to wait for better prices to enter, but DCA also applies to assets you plan to HODL long-term.
Currently, about 70% of what I buy is $BTC and $ETH, but I'll reserve 30% for altcoins that I believe will shine in the next bull market. You have to decide which assets you believe in and what allocation ratio makes sense for your goals.
If the overall situation worsens, I also have to ensure I have enough stablecoins to weather the crisis. Ultimately, DCA is only effective when you have allocated funds. |
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Post time 25-1-2024 09:39:31