So you spent a little time building out a strategy for yourself. You set some goals and you set aside some capital. You scheduled your investment periodicity. You even did some solid research and found a couple of decent cryptocurrency projects you think may have a product in the future. Maybe you’ve even had some time go with picture perfect dollar cost average discipline in place. So far so good…
Let’s recap the basics…
Dollar cost averaging is investing a specified amount at a fixed interval, cost averaging occurs on schedule regardless of market movements.
Dollar cost averaging is NOT trying to time your averaging with dips in the market.
This is not to say that buying the dip is not a viable investment strategy, but it is NOT dollar cost averaging.
But…and I’m guilty of this one too…you just realized this morning, while drinking your cup of coffee, the market started pumping up last night! Look at that 24 hour volume! Is the bull run back? Holy crap, you haven’t even had time to get all of your DCA capital into the market!!!
Okay…Maybe just this once you can take double your usual capital and buy 5 days early to take advantage of this market action, after all, the bull run is about to kick off and you don’t even have all your capital in yet. Just gotta transfer over the funds annnnnnd…….the market dumped. Crap.
The entire purpose behind dollar cost averaging is to remove the emotional speculation behind trying to time market movements. Sometimes you will cost average, and the market will move up, sometimes you will cost average and the market will move down…but the idea is that over time, these fluctuations will even themselves out.
Having the discipline to stick to this strategy consistently and not flip flop back and forth between cost averaging and FOMO buys, serves the explicit purpose of reinforcing a stoic proactive style of trading. By removing emotions from the decision making process, you are minimizing your exposure to volatility, both in terms of your judgement, and in terms of the unpredictability in the market.
There is nothing wrong with buying the dip. I’ll say it again. There is nothing wrong with buying the dip. I buy the dip on bitcoin all the time. But don’t make the mistake of telling yourself it’s dollar cost averaging if it isn’t. Be honest with your intentions, be honest with your goals, and stick to your plans.
If you want to remove emotions from your trading, then remove emotions from your trading.