Looks like I have a problem with a capital of 10,000 USD to purchase Bitcoin every 1st of the following month.
If I buy until May 1 with 10,000 USD but Bitcoin is still going down in June and July, what should I do?
I mean, I have run out of capital to 50,000 USD but the price of Bitcoin is still down.
Well, my example was to correct yours to give you an idea how that works, but DCA isn't meant to work like that, each technique is more suited for something, and look even this case there are more risks, for example Bitcoin could go next day to 500% that means you should have bought all in and not spread it ,right?
DCA was more like a savings account, so you know that for 10 years from now on you have some extra $200 a month so you buy each month that amount worth of shares till your retirement, it's not designed for having now a huge chuck of money and then nothing! It's main strength is being spread over a longer period of time so despite volatility once you have enough entry points it evens out, much like the results from throwing dice six times and the results from throwing it 6000 times, very low chances of getting all the numbers in 6 tries but pretty close to getting the same amount on 6000 tries.
"Averaging Down"
I also just heard this trait trick and it seems that this Averaging Down is very friendly for me to live because it tends to fall the price of Bitcoin, the more I buy Bitcoin.
No technique is bullet proof.
Imagine you would buy 10k worth of Bitcoin every time is goes down by 10%.
- What happens if it goes back to 10k and you ran out of money? You bought at 3x time the price you could have!
- What happens if the price doesn't go down? You wait and wait....
Each thing has it's own strength and weakness, DCA is for guys not caring about the price , wiring $x each week or month and buying coins no matter the price, averaging down is someone looking to catch the dip with a margin of error, both can be rewarding both can fail miserable compared to others