Dollar Cost Averaging – DCA
When you’re buying cryptocurrency or selling, you can DCA in or out. Dollar Cost Averaging is spreading your entry or exit capital over time to establish an average price in a volatile market. Dollar Cost Averaging can also be used in Crypto Bot Trading to average an entry price in a falling asset to reach a profitable exit point faster.
Normal Dollar Cost Averaging is averaging in or out. For example, lets say I want to invest $10,000 into Bitcoin but the price has been all over the place and I want the best deal. If I wait too long, the price could shoot up fast and I miss a buy in opportunity. If I buy in right now, the price could drop and I’ll have missed a better position. To alleviate this, I could spread my $10,000 investment over 10 days by buying $1,000 per day for ten days and get an average entry price.
Crypto Bot Trading with Dollar Cost Averaging setting.
So, I’m running a great strategy on my Crow Trader Bot but if the price drops after an entry, I need to be able to get out of the trade fast so I can free up the capital for additional trades. One of the easiest ways to lock up a trading bot is have too little capital and a red day. Your bot buys a bunch of various cryptocurrencies and when the whole market dips shortly after, you’re now holding bags at a loss you’re waiting to sell.
Lets say I buy 100 ADA at .10 cents USD each. I have my bot set to sell at a 1% gain with a trailing exit of .1%. I need the price to get to .101 cents each before my bot looks for an exit. Instead, the price of ADA drops to .099 cents USD. The price then falls again to .097 and again to .095 and then .092! Now I could have a while to wait before it goes back up! Or, I could DCA every time the price drops a certain percentage I set.
Lets say I configure my bot to run a 5 Tier DCA that doubles my initial entry every time the price drops by 1%. Taking the above example, I initially bought 100 ADA at .10. It dropped to .099, then .098, .097, .096 and finally .095. So the bot bought 500 ADA at an average price of = .0975 and now I’m only down by 2.5% instead of 5.128% . I add all of my entry prices and divide by 6 for the Dollar Cost Average.
When it comes to crypto bot trading, your DCA can vary based on your base pair. In other words, if you are using USD, then the value of USD doesnt change, however if you’re trading an asset to get more BTC, that could play for or against you depending on the price of BTC as your bot is making trades so you may find it easier to use a higher Tier at a higher percentage such as a 10 Tier DCA at 2% per Tier. This means you need to have 10 times your original entry capital to be effective.
When I’m bot trading I never go without setting up a DCA Tier system which is extremely easy in Crow Trader.
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