🤯 The Secret of Strategic Dollar Cost Averaging

👋 Hi finance enthusiasts and fellow investors!

Last week we talked about the right time to invest. In doing so, we naturally came across the word Dollar Cost Averaging (DCA). This is probably one of the most powerful strategies that YOU need to understand. I myself buy 90% of my investments using this strategy. However, I use a variation that most people don't know about. We'll cover that and a few other juicy secrets in this email. Let's go!

The information provided in this newsletter is for educational and informational purposes only and should not be considered as financial advice.

What is DCA?

Dollar Cost Averaging, or DCA, is a basic investment strategy that involves buying small amounts at regular intervals (weekly/monthly). Instead of buying everything at once, split your investment into several smaller investments.

Source: Binance

This picture summarizes well how it works. DCA should normally be used in times of panic and stress in the market when things are undervalued. It also works in other times, but it is most effective in these times.

DCA offers the advantage of removing emotions from your investment decisions. By following a preset plan of investing a fixed dollar amount, regardless of price fluctuations, you avoid the urge to sell during downturns or buy excessively during rapid price increases. This strategy helps shift your mindset to view market volatility as temporary swings influenced by others' emotions.

Okay, now you know what DCA is and how it works, but some of you may think: Stefan, I know DCA... this is nothing new and no secret! But wait a minute, that was just the introduction!

Strategic Dollar Cost Averaging

When it comes to Dollar Cost Averaging (DCA), there are actually two types you need to know about. The first one is the more common approach that everyone teaches, where you split your orders and buy at specific time intervals (think of it as the x-axis on a chart).

But here's where things get interesting. There's another strategy that can have a bigger impact and it involves splitting your orders based on specific price levels (y-axis on the chart). Since 2019, I've been calling it Strategic Dollar Cost Averaging and not many are talking about this.

Here's how it works: When you buy, make sure your purchase is made just before the support line. This way, you're strategically positioning yourself to take advantage of potential trend reversals. And guess what? The same concept applies to selling: simply take advantage of resistance lines. This way, you can base your exit strategy on specific price levels.

Source: Topstep

Now, let's talk about shorter time frames. When it comes to smaller time frames, keep an eye on the order book. Look for bigger orders that are about to hit the market. Buying just before those bigger buy orders can be a smart move. Same applies for selling before big sell orders.

Source: Wikipedia - Buy before a green "Buy wall", sell before a red "Sell wall"

Note: This works especially for markets with lower liquididy.

Does this work?

Yes! Particularly if we’re not in a bullrun this works like a charm. Since I mostly buy when nobody is interested in crypto, strategic DCA proofed to be extremly powerful. I can only tell you that I used that to buy into Bitcoin at prices betweeen 7k and 10k last bear market and did the same this bear market between $19k and $27k.

But everybody can throw claims. Therefore I started a new portfolio over a year ago in one of the hardest times for crypto to show how I do it and shared every single investment with CE Pro members. So far the portfolio outperformed the market and certainly the average investor by a multiple.

Results of the latest market report (Jun 30, 2023)

You see, mastering Strategic Dollar Cost Averaging can make a real difference in your investment journey.

Takeaways

• Start with simple DCA

• Learn about basic technical analysis to get familiar with support & resistance levels

• Get good entry levels using Strategic Dollar Cost Averaging

PS: I am pushing for our AI bot to be able to tell you the support & resistance lines. You can get on the waiting list here.

As always, I’m happy to help you guys! If you have any questions, ideas, or specific content requests, simply reply to this email. Your feedback and input are invaluable to me!

Wishing you a fantastic weekend!

Cheers,

Stefan

Co-Founder of CryptoExplorer