Over the long term, overactive and unprofitable traders can burn through unnecessary capital that could have otherwise productively been invested. As many can attest, outperforming the market is hard, and timing the market can be stressful.
Many long term investors recommend a method called Dollar-Cost Averaging (DCA). DCA reduces the stress of timing market tops and bottoms by purchasing a fixed dollar amount of an asset on a fixed schedule, regardless of price.
For example; you buy $10 of BTC every two weeks for three months, instead of buying $60 of BTC at today’s price.
By buying a small % of the total allocation every other week, you are getting different purchase prices of BTC. Some weeks you will get more Satoshi’s (the divisible unit of BTC), some days you will get less, but over the longer term, you will likely acquire more than if you outright bought today.
There are a couple of assumptions to be made when DCA:
1) The asset is volatile to BOTH the downside and upside. If the asset you are buying keeps going down and down, you may have just bought a worthless asset. Cut your bag before it gets too heavy. If you are buying an asset in a clear uptrend, your best bet is probably to buy in full now and hold. If the asset has proven to go lower in the short term, then higher in the long term, it is probably a good asset to DCA. Bitcoin and S&P are the best examples of well documented bidirectional volatility.
2) The commission you pay on every scheduled transaction must be negated by future returns on equity. If you are paying 5-10% fees per purchase, you need to make more than that in ROI to JUST break even. Sometimes buying in smaller lots can result in higher fees, as exchanges have a fee tier that rewards whale traders.
DCA Bitcoin Calculator: https://dcabtc.com/
DCA Wikipedia: https://en.wikipedia.org/wiki/Dollar_cost_averaging
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