Is this a good time to invest? Two investment strategies explained
Trading and stress
Trading can be quite a stressful adventure, especially when it comes to crypto trading. The prices in this market are highly volatile, with price crashes of sometimes 50%. This volatility makes beginners and even experienced traders shiver from time to time. During these times, you might be wondering if right now is a good moment to enter the market and start investing, or would tomorrow be better once the prices increase again? In this article, we present to you two of the most common trading strategies that traders follow.
Lump-sum investing and holding
First, the most straightforward strategy; investing a lump sum all at once for the long-term. The idea is that after you invested your money, you don’t touch it anymore and just let the market grow your investment. This strategy may sound easy, but is it? There are two things you should keep in mind when following this strategy.
One of the most challenging factors of this strategy is your mind. How difficult your mind will be for you depends mainly on the amount of money you plan to invest. Is it a large sum of money? Then you will likely experience strong emotions when you see the market rise, but mainly when the market falls. During the moments where the market falls, you will feel panic and the urge to sell to prevent further losses.
Another aspect to keep in mind is the eventual return on your investment. When you invest a lump sum, you may generate a nice return. But in the meanwhile, you’ll see that the market dips from time to time. And if you were able to resist your emotions mentioned earlier and didn’t sell, in the end, you missed a lot of great opportunities to profit from these dips as you already invested all your money. So next up is a strategy that lets you benefit in these situations as well.
Dollar-Cost Averaging (DCA)
Dollar-Cost Averaging (DCA) is a popular strategy among investors. In this strategy, you invest your money periodically. So every day/week/month, you invest a small portion at a set time. This way, you can even out the market’s volatility, leading to a lower average entry price. So let’s take the lump-sum investment from the first strategy, what if you lower the principle investment and use the remainder to invest periodically?
Following this strategy lets you leverage any dips that may occur during your time in the market. For example, if you bought your first crypto for $1, and you make your second investment at $0,75, your average entry price is $0,875! Another advantage of this strategy is that you may also feel like you are more in control as you invest during dips, preventing that horrible fear-of-missing-out (FOMO). An alternative form of the DCA strategy is to invest during each drop. This requires you to keep an eye on the market actively.
No time to trade or looking to avoid stress while trading? Use the BOTS app instead
On May 20th 2021 the crypto market fell hard. Losing an average of 21%. And that is where algorithmic trading comes in. The bots in the BOTS app are designed to do the trading for you, making it a lot easier to avoid the steep falls that occured last wednesday.
Not only were some of the bots able to prevent the same losses the market did, some of them even managed to create a positive return.
There is no such thing as risk-free trading. It is possible to lose (part of) your stake.
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