Average price is a basic and popular strategy in the stock market and now it is heavily applied in coin. What is the average price? Simply put, it’s a tactic to buy more when it’s cheap or expensive (average price down / up) to get a new average price.
1 Average price in coin play
1.1 About the average price
1.2 Apply average price strategy
1.3 Applying an average price increase
Average price introduction
Dollar-Cost Averaging – DCA is the name of this method. Therefore, in the analysis, it is sometimes referred to from DCA as the average price. Price theorems are based on average prices, for example:
You bought a bitcoin for $ 4800, after the Bitcoin price has fallen to $ 4000, you still have money and continue to buy a Bitcoin, so the average price of the two bucks you buy will be: ($ 4800 + $ 4400) / 2 = $ 4400, so you will be profitable when BTC goes above $ 4400 instead of up to $ 4700 still negative.
Apply average price strategy
The average price is a double-edged sword, so apply it flexibly if you do not want to be stabbed by it. Please give us specific examples for you to imagine:
You buy a Bitcoin for $ 4800, after Bitcoin drops $ 4400 you buy a Bitcoin, then Bitcoin drops to $ 4000, so your losses will increase as you have to bear the loss of the average price. .
Theoretically pure, if Bitcoin is still worth you can not lose by the average price if you always have more money to buy when the price goes deeper. Back to the example above, the price is down to $ 4000 you buy 2 more BTC, the price dropped to $ 3000 you buy 10 more BTC and so on. This theory is similar to folding gambling: You lose a game, you put a double amount, lose twice again until you win, this theory is correct if you have enough money. After 5 consecutive loses, the amount of money you need to win in order to make a profit is 16 times, so the vast majority of people who apply DCA wrong method, strategy and discipline will run out of money very soon.
So there are some principles for applying the average price:
Absolutely no average price applied in long term down trend. Creating a new bottom after a few days, the more you try to average the price, the faster the losses. There are even some investors who oppose the medium to extremes, for whom they were wrong to cut losses. Actually if you average the price wrong, the number of holes is much larger than cutting losses.
Average prices apply quite well in short waves of the day or a few days. In fact, for e-currencies, a strong discount of over 20% (20 – 30%) has a strong return over 24 hours. So when prices drop very deep during the day, you can completely apply the average price to get the mold out in that wave. Keep in mind: The division of small capital into parts is necessary, discipline in the average price is very important to avoid when the price has fallen to a very beautiful milestone you run out of money.
Apply an average price increase
Average advanced prices are usually applied as average prices rise. It sounds paradoxical but in practice this method is safer and more interesting than the average down price. Specific examples:
You buy a Bitcoin for $ 4000, Bitcoin is up to $ 4200 with a very strong boost, you buy another bitcoin, so the average price of every Bitcoin you buy is $ 4100, higher than the original $ 4000. have a high chance of winning because the market has come up clear trend.
The average price up applies very well in a storm of the coin market. When the storm is deep enough, it can dissipate anytime, with up to 20% reduction, you can apply the average price up and down. I usually apply the average price in such a way, specifically (this is the average price down example):
About one fifth of assets when prices fall over 15%, beginning to trend reversal. So if the price goes up right away, you will not miss the boat trip. If prices drop by 5%, I will go to another 1/5 property, after the price reduced to the 25%, if any, to add 1/5 property. In the wave of the day, almost certainly over your average price, not to mention the upward trend. Note: This is only applicable in the short term, long term is very dangerous if the down trend.
Average price up applies to: You just sit down when prices fall, when the price is clear enough to buy you at the landmark A, prices continue to increase markedly, you buy more at the higher B and pin point C highest. Here is the theory: Buying higher sales is a lot of favorite trader.
This means that the average price is very good for strong and fast waves with short waves, or for accurate trends with long-term investment. In contrast, applying a short-term average price to the long-term will make your losses grow tremendously. Again reiterate the principle when the average price:
Do not rush to run out of money early for example DCA as soon as the new price drops by 2 3%.
Not applicable when the price drops drip
Do not go too far in a landmark, no matter how cheap you see.
Conclusion
This is just a basic share of the price strategy itself. Having a flexible and disciplined understanding and application will help you to have a more accurate and effective investment strategy, so there may be some mixed opinions from investors.
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