This trading strategy saw 48% gains from Bitcoin’s ATH

19 Jun, 2019
by Will Heasman
Video

Trading can be difficult, timing the market at the right time is tricky, and technical analysis isn’t always a trader’s best friend; however, with dollar cost averaging, a trading strategy which has proven results, investors who are more inclined to HODL and hope, can - for the most part - sit back relax and enjoy their gains…

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We’ve all been there, you want to invest in Bitcoin but you’re not sure if it’s the right time, the classic model of "buy high sell low," gets a little old after a while, and whenever you buy the market crashes because you’re just that good at trading…

But what if there was another way to invest? one that didn’t involve poring hours over various charts and indicators to try and work out the best time to enter.

Well, there is, and for the most part, it appears to work pretty well. That method is called dollar-cost averaging.

Lucky dip. 

Instead of placing a lump sum bet on Bitcoin at a certain price, dollar cost averaging spreads the investment out over a number of days, weeks, months or even years.

To explain, Let’s try some role play quickly: it’s Christmas 2017 you’re sitting around the table feeling pretty full after gorging on an entire roast dinner, you check your Blockfolio, Bitcoin is around $15000, after dipping from a high a week ago of around $20,000. Not a bad time to buy, or so you think.

If you had pulled the trigger at that time, a modest investment of $10k, would’ve netted you a loss of around -40% - sure, in the long term this could still turn around but what’s the lesson here? It’s probably best not to try and time the market…

That’s the point of dollar cost averaging, it allows for a carefree approach to investing. So let’s try a different scenario, once again it’s Christmas 2017, Bitcoin just hit its all-time high of around $20k on December 17th, you didn’t FOMO on the way out and now that build up for angst is becoming all too much, but you don’t want to try and time the market, because as we know that can be messy, so you make a plan.

The HODLers choice... 

$100 investment each week, every week, from the weekly close following Bitcoins all-time high, until - let's say for argument's sake – Monday, June 17th, 2019.

This initial 100-dollar investment would have occurred at 12 am (UTC) on the 18th December 2017 with Bitcoin at a price of $19,550, netting you a cool 0.00511 BTC; congrats, you’ve managed to purchase one two hundredths of an entire Bitcoin!

Fast forward two months to the 12th February 2018, Bitcoin is at a price of  $8178, your $100 investment gathers you 0.0122 BTC today, and you’ve picked up a total of 0.740 BTC, amounting to a USD equivalency of roughly $605. So far you’ve invested $900… not so great, we’ve incurred a loss of around -32%, but this is a bear market what do you expect? … Still infinitely better than buying at the top, though.

6 months on, and Bitcoin is at a price of $8200. $100 gets you 0.0121 BTC today, and your total bitcoin accumulated stands at 0.377 BTC, with a current USD equivalent of $3091. You’ve invested a total of $3300 so far, so you’re only -6% down. finally, we’re getting closer.

Skipping ahead a little - 19 months to be exact, and Bitcoin is citing a price of $9051. You’ve managed to scalp 0.0110 BTC using your $100 today. This brings your grand total to da dada da daaa: 1.292 BTC, with an end of study USD equivalency of $11693. In total you invested $7900 USD which brings your total profit to $3793, marking a +48% return on investment (ROI). Not bad at all.

So, it seems the dollar cost averaging strategy appears to have paid off, not to mention that a fair amount was invested near Bitcoins all-time high and within a bear market full of uncertainty. Moreover, If the study was undertaken during the latter half of 2018 the results would have been even more impressive.

For example, if we started the process from Bitcoin’s bottom, (around the 17th December 2019, when bitcoin was at a price of $3252, investing up until this Monday you would have gained 0.592 BTC from an investment of $2700, an ROI of approximately +60%.

Now, obviously this is no substitute for buying the bottom, investing that same $7900 figure into BTC around the proposed December bottom of $3252, would have given returns of 151%, and a total end value of around $19800, but there’s no point crying over miss opportunities, plus the chances of the average joe calling that bottom are slim, to say the least.

Interestingly, if we average out Bitcoins price through the course of our study we get $7161, we actually spent 32 weeks above this average buy-in price and 48 weeks below. Investing $7900 within this average would provide 1.103 BTC, an end of study USD equivalent of $10,266 a figure that still wouldn’t beat the dollar cost averaging technique.

This key takeaway about this technique is that it negates FOMO, as well as the stress of timing the market, all the while providing gains within both in a bear market and at the very top of a bull cycle, that’s not too bad… 

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