The Common Problem of Beginners
Suppose you have $100 to invest in a cryptocurrency that you think will rise in value. Your goal is for it to reach $130.
The mistake many make is investing the full $100 all at once when the coin is worth $100.
What if the coin drops in price? If the coin drops, say to $90, you've already used all your money and have nothing left to buy cheaper. If later the coin rises again to $100, you won't have gained anything, because it simply returned to the same point where you bought.
The Smart Strategy: Gradual Buying
Instead of putting all your money in, the strategy suggests splitting your investment and buying the coin at different times, especially if the price drops. This is called "averaging" or "dollar-cost averaging".
Practical Example:
Imagine you have $100 to invest and want to buy the coin when it's worth $100.
Initial purchase: Instead of spending the full $100 at once, you decide to buy with just a part, for example, $20.
Coin at $100: You buy for $20. You have $80 left in cash.
If the price drops, buy more: If the coin drops in price, you take advantage of that to buy more, allowing you to have a lower average purchase price.
Coin drops to $95: You buy $15 more. You have $65 left in cash.
Coin drops to $85: You buy $15 more. You have $50 left in cash.
Coin drops to $80: You buy the remaining $50. You're left with no cash.
What did you achieve with this?
By buying at different times while the price was dropping, your average purchase price is no longer $100. Now it's much lower, approximately $87!
The Great Advantage of This Strategy
Gain without reaching the goal: If the coin, instead of rising to $130, only returns to its initial price of $100, you would have already gained approximately 15% on your investment, or about $15. Why? Because your average cost was $87, and if you sell at $100, you're earning the difference.
Why Is It So Important?
You reduce risk: You don't put all your money at a single point, which protects you if the price drops.