Bitcoin has broken the two key supports at 45K and 42K in the last week. This confirms the bearish bias that we are headed to the 40k-38k area in the next week. What about the 40k whole number? Is this a good price to buy bitcoin? We constantly see people going all in with leverage and getting liquidated. In this article, we will talk about a safer way to trade bitcoin which is dollar-cost averaging, and why this is a good strategy especially for inexperienced traders.
The key support area is between 38-40k while RSI is at the lowest point
Dollar-cost averaging Bitcoin
The idea of dollar-cost averaging is to think about your bitcoin investment as a store you have to buy the stock at wholesale prices to sell later for retail prices. So you accumulate inventory when prices are cheap and sell when prices go high. However, cryptocurrency prices have high volatility and an investor will not know if he is buying at wholesale prices since prices dip and when they buy prices dip more.
This is where the dollar-cost averaging comes into play to manage the risk. The first thing you need to decide is how much are you going to buy in total and split it into small batches. Let say you want to buy $10k. You may split it into 20 batches of $500 and buy a batch weekly. If the price is not too attractive for example above $60k you may buy at a slower pace or smaller batches, and when the price is more attractive for example at $40k after a 40% dump you may go for bigger batches of $1k weekly or twice a month. In this way, you will need several months to invest the total amount of dollars you have planned at the beginning.
Bitcoin price may go lower and hit $30k or $20k. This is why you are averaging down and in the end, you will have you spread your purchases between 40k and 20k with let say a $30k average price for example. Of course, theoretically the bitcoin price may go to zero and you will lose everything, but you are investing in it because you believe that bitcoin has a future.
If the bitcoin price goes lower the pain will be lower for those that average down because they will not be fully invested compared to the strong hands that FOMO and go big at one move.
I was getting a lot of messages from friends asking if it is a good time to start buying bitcoin when we were above $60k. I always tell them to go small and not FOMO. Usually, these messages from new people who want you to buy bitcoin are top indicators. You do not receive such messages after a 40% drop.
Well, are we in a price range that is good to buy Bitcoin. In my opinion, it is we have seen a 41% drop, we may wick down to 40 or even $38k but this is an area where buyers eventually show up and create a reversal point.
Going for a large batch here makes sense even if we are going toward 20k and that next month which is unlikely in my opinion but everything is possible.
Accumulating in small portions spread in months lowers the risk compared to swing trades.
While I still consider this a correction and the overall market structure still bullish, buy signals after a 40% correction can still go wrong and the price may dip more and force you to close your position at loss and then pick up the uptrend and frustrate you more. To make swing trades is more logical to wait for a reversal before going long. On the other side swing trading here is considered aggressive.
Another important thing to remember is to let the price structure affect your decisions and influences that call prices, like those $100k prices in November and December. Of course, everybody is a genius in a bull market buy think about your investment in terms of risk and not reward.
Something to take into consideration is the tightening policy and the interest rate hike the Federal Reserve is starting to apply because of record-high inflation numbers. Usually, in such times speculative assets like stocks and cryptocurrencies do not perform well.