DCA and catching the falling knife
Whenever the crypto market is down, we all have doubt if we are doing a Dollar Cost Average or catching the falling knife. It is really hard to predict if we are doing the right thing. Some people who are observing the market very well would definitely know when to do DCA and when to stop catching the falling knife. People can do this on cryptocurrencies they know very well. Continuously investing in a random coin when it is falling down is more like catching a falling knife.
Preventing loss is sometimes difficult. People think that they can compensate for their loss when they again purchase the coin at a lower price and sell it when the price pumps back. For people who have already bought a lot of coins when the market was very good, it can be heartbreaking to look at the value of their holdings when the market is red. That is when people do a dollar cost average just to bring their loss down. If the value of the coin pumps back, it is enough if it pumps about 75 percent of the previous value because the DCA would take care of the remaining and would start showing green.
We have to also be very careful about when we are investing and on what coin we are investing. Investing in some random coin is very risky especially when the market is going in the wrong direction. People might think that they are doing the right thing but it can be like catching a falling knife and it would hurt our investment. Sometimes we may not even be able to recover from the loss completely even after waiting for years.
This once happened to me in the stock market. There were some good trades happening on cryptocurrencies and everyone was trying their luck. My friend cautioned me not to enter. But I was very curious and the first two times I got a decent profit. I bought it low and sold it high. It was especially during the same day. After that, I started getting greedy and started buying again and again when the price was going down. Nobody expected that it would go very low. I waited for a few days and bought it again and again and finally ended up at a huge loss. I had to compensate for the loss by doing some good trades on other stocks.
The main intention for me was to do a DCA on my bought price but only after a few attempts and spending a lot of money in DCA, I realized that I was catching a falling knife and the stock never recovered back. I had to exit the stock with a huge loss.
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