“Be careful”: a simple trading strategy popular among newbies might not be as good as you think

As we all know very well, cryptocurrency trading methods are almost entirely borrowed from traditional exchanges. Here, by the way, we wrote in detail about the most common cryptocurrency trading strategies and what are the best ones for beginners. So here it goes.

One of them is called Dollar-cost averaging (or DCA for short). Its essence: the investor buys target assets at certain intervals regardless of their prices — that is, they completely ignore the market situation. And now, a user nicknamed hjrocks makes a case on Reddit that this trading methodology is unsuitable virtually for all cases.

“Vast majority of crypto investments just don’t fit the DCA model. Almost no crypto project has fundamentals in place (there is no true revenue source, no product or service provided to end consumers, etc.). BTC practically acts like a mid-cap 1000 index fund, and one can argue in favor of DCA with it. And almost no crypto projects have reliable non-crypto-based dividend yields (with a few rare exceptions). And most investors in crypto are simply not looking for a 5–10% annual increase in their portfolio (the kind of target DCA is most suitable for). They are looking for 100–10000% gains,” he wrote.

Here are his four main arguments

• DCA is better for broad, diversified, passive investments. For example, a Total Market Index instrument, a package of government bonds, etc.
• DCA is more suitable for assets with strong fundamentals. Theoretically, it applies more to BTC and ETH (even with a stretch). But it doesn’t apply to most other crypto projects.
• DCA is not good for any highly volatile assets (A statistical, financial indicator that characterizes the variability of the price.), and you expect a big price spike to realize your target profits. This is where most crypto projects (and crypto investors) fall.
• DCA should not be used as a strategy for dividend-paying investments (when you get a solid APY (APY or Annual percentage yield shows the total amount of interest you will earn on a deposit account in one full year, assuming you do not make any deposits or withdrawals throughout the year.) that offsets opportunity costs, etc.).

For those eager to earn more, hjrocks gave this advice: it is better to take a small amount and invest it in a few cryptocurrencies that are promising in the long term. Then forget about them and don’t check them for at least a few months.

Set a few price signals on which you will lock in profits (for example, if you are up by a significant amount, you should withdraw from part of your portfolio to get the principal back). This is a good way to profit while not panicking daily when the market fluctuates.