MultiversX Tracker is Live!

Basic DCA math most people don't realize

All Cryptocurrencies

by COINS NEWS 105 Views

I quickly want to discuss some basic math that will help you make better crypto decisions.

  1. Percentages loss vs gain (this one is known by most).
    You buy a coin. It loses 50% of its value. How much does the coin now need to increase to get back to its original value? It's not 50%, but it's 100%
    Example: bitcoin is 50k. It drops 50%, so it drops to 25k. To get back from 25k, it needs to go up a 100%.
    This principle becomes more extreme at higher percentages. If your coin drops 90%, it needs to go up 1000% to get back to its initial value.
    Unfortunately, this means that pumps are not as good as you may expect if your coin dumped first. If you mistake this math, you may make decisions based on incorrect numbers (e.g. selling because you think you're break even)

  2. Buying below your average buy in price is much more impactful than you think!
    Your monthly DCA is 250 dollar.
    BNB is 250 dollar
    So you buy 1 BNB this month.
    BNB drops 50% to 125 dollar.
    You are disciplined and continue to DCA: you use your 250 dollar to buy BNB this month.
    What is your average BNB buying price?
    Many people think it's the average of their buy ins, so 250+125 = 375/2 = 187.5 per BNB
    But month 1 your 250 dollar bought you 1 BNB
    Month 2 your 250 dollar bought you 2 BNB
    So you spend 250+250 = 500 dollar in total
    You bought 1+2= 3 BNB in total
    money spent/coin received = average buy in price
    500/3 = 166.7 per BNB
    As you can see, your average buying price drops much faster than most people expect buy buying below their average buy in price.

Concept 2 helps to make up for concept 1. Concept 1 shows that you a coin has to make crazy gains to make up for losses. If your coin needs to 2-10x in value just to make up for the losses, people get discouraged, sell to take their losses and give up. But concept 2 shows that if you can buy your coin/token below your average buy in price, your average buy in price drops extremely fast. That in turn means you don't need a 2-10x to break even, but that smaller pumps will be enough.

Does this mean you should always double down on a coin that is below your average buy in price? No. If you believe the project is solid, absolutely continue to DCA. It helps ENORMOUSLY. But it only helps if the coin will go back up at some point. So please don't use concept 2 to rationalize doubling down on silly ponzi hype coins. But if it's a real project with a real use case, don't underestimate what buying below your average buy in price can do for you. Not only mathematically, but also mentally. With relative small buys, you see your average buy in price or percentage loss go down rapidly. This helps you from giving up on the space and sell at the bottom.

Any other common math mistakes we can share?

submitted by /u/chose_cool_username
[link] [comments]
Get BONUS $200 for FREE!

You can get bonuses upto $100 FREE BONUS when you:
πŸ’° Install these recommended apps:
πŸ’² SocialGood - 100% Crypto Back on Everyday Shopping
πŸ’² xPortal - The DeFi For The Next Billion
πŸ’² CryptoTab Browser - Lightweight, fast, and ready to mine!
πŸ’° Register on these recommended exchanges:
🟑 Binance🟑 Bitfinex🟑 Bitmart🟑 Bittrex🟑 Bitget
🟑 CoinEx🟑 Crypto.com🟑 Gate.io🟑 Huobi🟑 Kucoin.



Comments