Best Bear Market strategy; Dollar-Cost Averaging
How to build a strong portfolio during the bear and profit consistently.
A very common problem for investors and traders is timing the market correctly. This has to do with both buying and selling at the best prices.
Dollar-Cost Averaging (DCA) helps to solve this by spreading out your average buy price and limiting the volatility’s impact on your portfolio.
Dollar-Cost Averaging is buying/investing in an asset with an equal amount of fiat(money) at regular intervals for some time, overlooking the price.
The effect of a bad entry on investment, done once with a huge capital would be limited by this method.
How Dollar-Cost Averaging works
Let’s explain an example of the use of DCA:
Let’s say you want to invest in Bitcoin with an amount of $12,000. You spread this monthly for a year — this means each month, you’ll buy $1000 worth of Bitcoin no matter the price.
This can also be spread daily or weekly.
Also, you may be earning monthly and want to invest a fixed amount from your earnings in an asset monthly, this is also valid.
Because the timing of the market is a problem that even trading veterans face, DCA can help you in both short-term trading and long-term investments.
In short-term trading, timing and entering at the right price can be difficult even when you have analyzed where the market is heading.
While the market is volatile and moving sideways, using DCAcan smoothen your entry price.
This can also help you in selling or locking profits — it eventually depends on your trading style.
In long-term investments, DCA can be the best strategy for investors who buy and hold, because they know that the market will rise over a long period. Spreading out their capital and buying at intervals takes advantage of the volatility.
How to use Dollar-cost averaging in a crypto bear market
The crypto bear market is known for crashing prices and sideways chart movements. It is advisable to build a solid portfolio while waiting for the next bull market. Hence when it arrives, your gains will be over the moon.
DYOR — Doing your own research (DYOR) is the first step in building a good portfolio. This enables you to invest in the right assets.
Setting up a portfolio: Based on the research you have made, set up a portfolio of 3–4 assets you will be investing in regularly — the reason for this is diversification. This should be a mixture of blue-chip (low risk) assets e.g $Bitcoin and layer 1 (medium risk) assets e.g $AVAX
Spreading your capital monthly is the third step. Why? Because based on past events, it takes the crypto market at least two years before another bull market starts. Hence investing a fixed amount monthly gives you a good average buy price. This should be spread evenly amongst your portfolio assets.
To illustrate this:
You have done your research and you want to set up a portfolio with $Bitcoin, $BNB, and $SOL.
You have a fixed amount of $10,000 to DCA into these monthly for two years (24 months).
$10,000 spread into 24 gives you $416.7 each month.
$416.7 spread evenly among your 3 portfolio assets gives you $138.9 in each of them monthly.
In summary — $138.9 will be invested in each of your assets monthly for two years.
This can be automated in exchanges like Binance.
If you are a monthly earner and you don’t have a huge chunk of capital to commit, you can set aside a fixed amount from your monthly earnings for each portfolio asset.
An easy-to-use Dollar-cost Averaging calculator for Bitcoin exists at dcabtc.com. This gives you details about how DCA strategies would have performed over time. You can specify the timeframes/intervals and amount and gets the results. This strategy has been working over time.
In conclusion, building in a crypto bear market using DCA strategies has been proven to be profitable because it takes advantage of the volatility and low prices and maximizes profits when the bull markets come. However, research is a part of achieving this.
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