You have probably heard about DCA if you have any friends who are into crypto. If you are mong cryptocurrency holders and do not know about DCA, it is a good time to learn about this highly efficient strategy that works especially well with some tokens. Fresh crypto news every day!
Explaining DCA as simply as possible
DCA stands for Distributed Cost Average and refers to a very specific strategy focused on buying assets at the lowest possible price over a selected period. What it means is that you can break down your capital put aside for purchasing crypto into multiple portions and buy assets during a downtrend to ensure that you have lower average price paid.
Here is an example:
- You have $10,000 and want to invest it in ETH;
- If you bought as much ETH as possible on September 15 during the dip, you would get 6.825 ETH at $1,465;
- If you used DCA and purchased during the next 4 days using 4 separate portions and purchasing at dips, you would get more.
The calculation is quite simple and can be broke down into 4 steps:
- On September 15 ($1,465 dip), you would buy 1.706 ETH.
- On September 16 ($1,404 dip), you would buy 1.78 ETH.
- On September 17 ($1,413 dip), you would buy 1.769 ETH.
- On September 18 ($1,365 dip), you would buy 1.83 ETH.
In total, you would end up with 7.085 ETH which is more than you would have obtained if you ust bought in bulk. DCA works during bearish movements in the market and can be a powerful tool in your arsenal if you are interested in accumulating resources and building a large portfolio in the long run.
However, the strategy is used not only buy holders of tokens who want to buy as much as possible and wait until tokens appreciate. It can be a great tactic for a speculator.
DCA buying and selling
Since price retracement happens in most cases, you can use the principle of DCA to accumulate a large long position and liquidate it when the time is right by calculating the potential price retracement. There are many instruments that allow you to gauge the amplitude of a price correction. For example, you can use Ichimoku Kinko Hyo, a powerful all-in-one indicator that shows you where future support and resistance levels will likely form.
Use the DCA approach when the downtrend is stronger and wait for the reversal. When the price retracement starts, you should put a take-profit order above the first entry in the market and in accordance with data obtained from Ichimoku. If you have to pay for rollovers, make sure to include the cost in the final calculation to determine the most optimal take-profit range.
DCA bots and crypto automation
In the crypto industry, using automation is often a necessity since the market is so chaotic, volatile, and fast-paced. Automation is a simple script executed in the cloud that trades on your behalf on the crypto exchange of your choice. There are many automation solutions that you can use to ensure that orders are executed according to settings of your DCA strategy.
The advantage of using bots is that they place take-profit instantly to ensure that all your orders are profitable. While it is not a 100% sure strategy, it is a good way to earn money consistently with lower risk and higher rate of order placement.
DCA works best when applied to instruments with higher volatility because you will see more opportune moments to enter the market. It is also a great choice for people who want to utilize automation.
The conclusion
Distributed Cost Average is the most popular approach to buying tokens in the crypto community. While the vast majority of people are focusing on just hoarding coins, you can use this technique for various purposes including auto online trading and scalping. DCA is a good strategy that you should learn if you want to stay competitive in the crypto industry.