With dollar-cost averaging, you can't simply add up each purchase price and divide by two
Suppose an asset costs 100 the first time and 50 the second time, and you invest 100 each time. The first purchase gets you 1 unit, and the second gets you 2, for a total of 3 units bought for 200. The average cost is about 66.67. Averaging 100 and 50 to get 75 gives you the average of the two quoted prices, but overlooks the fact that you bought different quantities.
That's the key to investing a fixed amount at regular intervals: you invest the same amount each time, so you buy more units when the price is lower. An explanation updated by Binance Academy on October 5 also defines dollar-cost averaging as buying a fixed amount at fixed intervals—not buying the same quantity each time.
But a lower average cost doesn't mean your account can't still be at a loss. Continuing with the hypothetical example above, if the price is still 50 after the second purchase, the three units are worth only 150. That's still a 25% loss on the 200 invested, before fees. Calculating a lower cost basis doesn't automatically create a profit.
When planning staggered investments in $BTC , $ETH , and $SOL , I would first write down the total budget and investment period, then calculate the average cost by dividing the actual total invested by the actual number of units acquired. Doubling the amount on a whim because of losses changes the original funding plan; you can't explain it away with the words “dollar-cost averaging.”
My first concern is whether I can keep this budget going through market fluctuations. Only after that do I consider how much better the average cost looks. Investing a fixed amount can reduce the pressure of timing the market, but it can't replace assessing the asset and deciding when to exit.
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Suppose an asset costs 100 the first time and 50 the second time, and you invest 100 each time. The first purchase gets you 1 unit, and the second gets you 2, for a total of 3 units bought for 200. The average cost is about 66.67. Averaging 100 and 50 to get 75 gives you the average of the two quoted prices, but overlooks the fact that you bought different quantities.
That's the key to investing a fixed amount at regular intervals: you invest the same amount each time, so you buy more units when the price is lower. An explanation updated by Binance Academy on October 5 also defines dollar-cost averaging as buying a fixed amount at fixed intervals—not buying the same quantity each time.
But a lower average cost doesn't mean your account can't still be at a loss. Continuing with the hypothetical example above, if the price is still 50 after the second purchase, the three units are worth only 150. That's still a 25% loss on the 200 invested, before fees. Calculating a lower cost basis doesn't automatically create a profit.
When planning staggered investments in $BTC , $ETH , and $SOL , I would first write down the total budget and investment period, then calculate the average cost by dividing the actual total invested by the actual number of units acquired. Doubling the amount on a whim because of losses changes the original funding plan; you can't explain it away with the words “dollar-cost averaging.”
My first concern is whether I can keep this budget going through market fluctuations. Only after that do I consider how much better the average cost looks. Investing a fixed amount can reduce the pressure of timing the market, but it can't replace assessing the asset and deciding when to exit.
Tap my profile picture to view live trades with signals.