The crowd often trades based on emotions and other people's beliefs, so when they lose, they become angry and blame others. To become a good trader, try to escape the crowd and find for yourself a safe and suitable investment method. To do this, you need to equip and improve your knowledge to be more confident when trading in the financial market.

For me personally, I choose a safe investment method that, in my opinion, does not require much effort in monitoring every minute of the market, which is DCA. Because we will never be able to buy low and sell high, we can only choose when to buy and how much to allocate to optimize profit and risk.

What is DCA?

DCA (Dollar Cost Averaging or price averaging strategy) is a method of dividing the investment capital into many parts in a fixed way, regularly over a long period of time. Averaging the price is not strictly bottom/top fishing because it is calculated as the best price that can be purchased.

If the trend is predicted correctly, the DCA method will help those with little time and long-term holding to get the best price.

Formula to calculate DCA average price

Average price = (1st purchase price × number of 1st purchase coins + 2nd purchase price × 2nd purchase quantity + … + n purchase price × n n quantity of coins)/total number of purchased coins for n times.

For example: For 6 consecutive months, each month you spend $10,000 to buy ETH on the first day of the month. ETH price fluctuates over months as follows:

  • January: $1,000

  • February: $800

  • March: $1,300

  • April: $600

  • May: $1,000

  • June: $1,500

Amount of ETH purchased each month:

After 6 months, you can buy 63.5 tokens at a DCA price of:

Average price = (1,000 × 10 + 800 × 12.5 + 1,300 × 7.7 + 600 × 16.7 + 1,000 × 10 + 1,500 × 6.7)/63.5 = $946.14.

So, if in the first month you use all $60,000 to buy ETH, you will only buy 60 tokens for $1,000. By using the DCA strategy, you bought more ETH at a lower price.

When is DCA possible?

Based on Halving

Halving is an important milestone in serving as a "guideline" to guide investors' actions.

According to a study by Pantera Capital, they delved into the impact of the halving event by analyzing the change in the stock-to-flow ratio per halving. Through the report, it can be seen that the first Halving reduced the supply of new bitcoins to the total number of bitcoins in circulation by 17%. This has a huge impact on new supply and it has a huge impact on prices.

However, the impact of each subsequent halving on price is likely to gradually decrease in importance as the rate of reduction in new bitcoin supply from previous halvings diminishes with the next halving.

Below is a chart depicting past halving supply reductions as a percentage of bitcoin in circulation at the time of the halving:

The 2016 halving reduced the supply of new bitcoins by just one-third compared to the first time. Interestingly, it also has exactly one-third of the price impact.

The 2020 Bitcoin halving reduced new bitcoin supply by 43% compared to the previous halving. It has a massive 23% impact on prices.

If history repeats itself and everything happens according to the correct growth cycle, then Halving is the right time for you to allocate investment capital. There are two factors you will need to calculate: investment proportion allocation and DCA period.

For example, you can choose the formula 4:4:2 to allocate investment proportion including:

  • Safe assets (BTC, ETH): 40%

  • Mid-cap low-risk assets (Altcoin Mid-cap): 40%

  • High-risk assets (Altcoin Low-cap): 20%

Note that giving investment weight also depends on each individual's risk appetite. There is no fixed formula, only suitable formulas. So please look at the numbers above as a reference and can be flexibly customized.

After determining the investment proportion, you can choose the time to "get in line". At this time, Bitcoin Halving will be a milestone for you to refer to.

  • 6 months before Halving: at this time the market will be in a downtrend and you won't know where the bottom is, so you can allocate capital to buy safe assets.

  • Halving period: this may be the time when coin prices drop deeply, but to manage capital, you can also consider buying more at this time.

  • 6 months after Halving: this will be the period when you can gradually take profits because at this time the market will start to have rising waves and many other positive signals.

Based on Market Cap and FDV

You can compare the FDV of the project you intend to invest in with the FDV of other similar projects to see the growth potential of your project.