Today I’ll be talking about what is Dollar Cost Averaging (DCA) and how is it used in trading. i will also shine a light on what importance it holds
What is dollar-cost averaging (DCA):
It is an investment strategy in which you invest a fixed small amount of money at regular intervals.
This allows you to take benefit of a market bearish without risking excess funds
Allowing you to keep up with greater liquidity and take benefit of market bullish.
*let's show that with examle :
Let's imagine that there is a person called Cecilion and he invests in filusdt with a fixed amount of $ 20 every month.
let's imagine the price of that currency in March was $ 5 Then Cecilion will have 4 pieces of filusdt in March.
And in April, the value of filusdt fell to $4, and Cecilion bought it for the same amount ($20) to have 4 + 5 = 9 pieces of filusdt in april.
And in May, the value of filusdt fell again to $2, and Cecilion bought it for the same $20, so that he owned 4+5+10 = 19 pieces of filusdt in May.
And in the following month, the price of filusdt raise to $10, and Cecilion bought it for the same $20, so that he owned 4+5+10+2=21 pieces of filusdt in June.
*let's do some math to show the efficiency of this strategy:
- Cecilion invested $80 in 4 months and owned 21 pieces of filusdt to be The average purchase price is 80/21 = $3.8
- Let's imagine that Cecilion did not use this strategy and bought filusdt for $80 at once in March when its price was $5 Then a cecilion would have 80/5 = only 16 pieces of filusdt instead of 21 pieces.
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