Dollar Cost Averaging
The concept known as dollar cost averaging is a technique to buy cryptocurrency with lower risk. Let me go through an example of why you might want to do something that's a little lower risk. You may have bought Bitcoin at its highest price when it was around 20,000 dollars, and then realized it crashed and you lost a ton of money. The dollar cost averaging approach; instead of investing all of your money at one point, you're going to invest a consistent amount over time. The amount is measured in dollars so instead of saying you are going to buy one Bitcoin every month, you can say something like you are going to buy 50 dollars’ worth of Bitcoin every week or every month. The reason why it's important to have a consistent amount in dollars is because this is going to neutralize risk. If the price is high, you're going to buy less Bitcoin but if the price is low you're going to buy more Bitcoin but the actual amount in dollars is going to be the same every single time. You can set something up like this inside of Binance and it's really simple. You don't have to find the dollar cost averaging button instead you just click on “daily recurring buys” to read more about it.
For example on Binance you can just click on “Buy Crypto” and then you put in an amount; for example 20 dollars, and instead of a one-time purchase you could do every day or you could do every week.
Then you can use the United States dollars that you transferred into your account or you can select your funding source such as your bank account. Then you can hit buy Bitcoin and that's going to transfer every single day or week. Make sure you check “confirm purchase” and that’s it.
As you see in a nutshell, dollar cost averaging it's an investment strategy that aims to reduce the impact of volatility. In other words, the high spikes in value upwards or downwards. Which as you should know Bitcoin is extremely volatile so dollar cost averaging could be a good thing to do with Bitcoin. That is how you set up dollar cost averaging and it's just going to take a consistent amount every single week in dollars. This is not going to give you the most gains compared to investing all of your funds when the price is low. For example if you invest when the price is low, and then the price goes up and it continues to be higher than when you invested, that's going to be the best way to make money. The problem is that you have to time the market and timing the market is either extremely hard or it's impossible and you can't actually know the price of Bitcoin in the future. You can do fundamental analysis or technical analysis to get better probabilities when you should either sell or buy but the reality is that most people just do not know what the price is going to be in the future.
So instead of trusting my intuition, you can just invest a little bit over time and that's going to be the easiest way for you to increase your Bitcoin balance without getting a ton of risk by just throwing all of your money into Bitcoin at one time. If you're buying and selling Bitcoin this might not be as useful to you, however if you are instead using Bitcoin to buy other currencies, different base currencies than Bitcoin, then getting a lot of Bitcoin is going to be really important. If you go into Binance, then click on trading, you can choose a different base currency and a different quote currency. For example you can choose Bitcoin to trade with Ethereum, if you were doing a lot of Ethereum trading, you want to get enough Bitcoin that you can make larger purchases and get higher gains in the process. But instead of throwing all of your fiat currency into Bitcoin immediately, I would suggest considering the dollar cost averaging transferring your fiat currency to Bitcoin over time. The same thing can apply if you're trading Bitcoin. So you might have a dollar cost averaging investment going on for 20 dollars a week or even 100 dollars a month, while you can also start trading another 100 dollars monthly. If you want to get a pretty large Bitcoin balance but you just want to make sure you're doing it with low risk, you can use dollar cost averaging to grow the amount of Bitcoin you have and at that point you can execute sell offers to get back your fiat currency and hopefully make a profit. I think the dollar cost averaging is more targeted for people who are buying and holding cryptocurrencies but it's definitely something that's useful to know about when it comes to trading especially if you just want to increase your cryptocurrency portfolio.
