Dollar-Cost Average or Cost Average Method
Suitable for long-term investors which are not very dynamic with trading.
The basic idea behind this approach is to lower the average buy price of the selected coin. It means that you don’t invest the whole amount of money at once, but partly in smaller amounts in a selected and constant time frame.
- Chose amount of money that you are willing to invest periodically (30 EUR, 50 EUR, 100 EUR, etc).
- Set up investing time frame of periods (1x per day, per week, per month, …)
- Investigate in which coin you are willing to buy/invest in such a manner. You must feel confident, that the selected coin is “healthy” – project, the company has strong fundamentals – in a longer period (a few months, year).
- Maintain discipline buying. Set up the reminder and execute transactions. With Palma shouldn’t be time-consuming if you use schedule buy which you can find starting with /buy button. Palma will do it automatically and you just need to maintain the supervision of the actions.
- From time to time, compare your average buy price with the coin price and fundamental status of the coin (project, company) and consider whether you want to keep doing it or it’s time to sell and search for another opportunity. Using the Palma Trading dashboard would be a very suitable way to do that.
Same as Basic but with the increasing and decreasing amount of the investment money, you can impact the average buying price even more. The goal is to achieve an average buying price as low as possible during the buying process.
- Check out the history of the price movement of the coin and try to figure out what could be the average price also considering the newest information about the coin project and some factors from the technical analysis (can be found online from the different authors).
- When the price of the coin is moving down, increase the amount of the investment assets and vice-versa, when the price of the coin is moving up, then decrease your buying power.
- Decide what is your average amount of money for periodical investment. Then decide the % of the highest and lowest investment amount according to the average amount. For example 100 EUR per week (average); if the price of the coin falling, then the maximum amount is 150 EUR; if the price of the coin raising, then the minimum amount is 50 EUR.
If you are not satisfied with the ratio (average buy price vs. momentary coin price), but fundamentally it’s OK, then proceed with the buying. But, if you’re satisfied with the possible profit and you think that the coin reached its peak and potential, then it’s time to sell it and search for the next one. If there is something fundamentally wrong with the project, then it might be a good idea to run out of there regardless of a possible loss. Just take another opportunity.
There are many different ways to conduct this strategy which also depends on what trading tool you use, what trading experience and knowledge an individual has, etc. The above mentioned are more or less basic ones which can also work just fine.
Fictitious example for educational purposes only:
Let’s assume that we have 1.200$ for investment. We can do it in different ways, but here are 3 examples.
- Invest 1.200$ at once at the price of the coin 7,45$. Then we wait for the price to rise and sell it when it comes to that. In this case, we sell at 7,49$. (All in)
- Invest 1.200$, but we do it partially – 100$ per week, 12 weeks – 3 months. Then we also sell it at the price of 7,49$. (Basic Cost Average)
- Invest 1.200$ also partially 12 weeks but we don’t use the same amount every week. The more the price of the coin falls, the stronger we buy, and vice-versa when the price of the coin raising, the weaker we invest in it. (Progressive Cost Average)
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