Gunbot DCA Strategy a Smart Way to Trade Bitcoin.
Learn the Logic behind Dollar-Cost Average and How You can apply the Gunbot DCA Feature to every one of your strategies.
Watch How you can Buy Bitcoin Cheap by Averaging Down your Bought Price. Cryptocurrency Dollar-Cost Averaging, BTFD for Fast Returns!
The cryptocurrency market is always volatile and suffers from a significant fluctuation in price. Often in such a market, it isn’t easy to enter or exit a position.
If the coin price is high, it takes considerable time for the investor to accumulate good crypto to execute the trade.
It becomes difficult for a trader or investor to hold for a long time when the price is moving down. Because of that, the dollar-cost average (DCA) method comes into play.
In crypto trading , either manual or automated, the truth is, no one can accurately predict the result, or if they do, it will be as much luck as it is technique.
What you can do, however, is make sure you’re ready for the worst without even having to watch the market or notice when the bottom is happening.
The technique is in Dollar-cost averaging (DCA), and it works by setting a monthly investment of a fixed dollar amount. The idea is that each month the money is used to buy coins.
Most brokerages will help set up a direct debit on brokerage accounts, and it is ideal for anyone, especially those with limited capital, to invest early.
The concept is straightforward since the amount of money to invest is fixed, but what you can buy for that money will increase as the market goes down.
That is to say, the lower the market, the more profit you make. Therefore, as the market goes down, you are regularly ready to buy the coins of your choice.
When the market hits a low, you can be sure you’ll be there because you have a fixed certain commitment period.
In general, what will happen is that the average price of your coins matches the price movement instead of buying in one order.
If you manage to synchronize the one-time call down the market, long term, as the market goes up, you are technically better off.
However, be honest, how likely is it that you will be able to invest at that time or know what that time is, rather than when you were?
Reducing the average cost per share of the monthly investment plan will be a better profit in the long run as the lower purchase prices will balance out with the higher cost months.
Gunbot Double Up feature is well known and widely used by automated crypto traders, and you can use it to lower your risk. Read more about How to use Gunbot DCA Strategy for managing your risk Here.
Although DCA is primarily a long-term investors strategy, my focus in this article is to show you first the basic DCA logic to use it later on Gunbot to your advantage. Let’s begin!
Gunbot DCA Why Dollar-Cost Averaging?
Suppose you have money, have decided to invest it, and already know what you want to invest. It can be anything, but let’s say it is bitcoin.
What’s the smart way to do it? Do you place the total amount upfront or spread the purchase over several days, weeks, or months to benefit from what is known as the average dollar cost?
The average dollar cost is often presented as an excellent solution to the dilemma that if you buy now, you could purchase everything “at a high price.” What if the market goes down right after the purchase?
In this scenario, the average dollar cost allows you to buy some from time to time at the new lower price, which leads to a better average price.
If the price doesn’t drop, buy it now and later at the highest price. Your average cost is higher, but you are still happy because the price has gone up, and you have made money.
Maybe the average dollar cost is to minimize pain and regret rather than maximize performance. If the price goes up afterward, you’re happy to have at least gotten in early with a partial buy before the price goes up.
If the price drops later, you’re so glad that you can buy more than you wanted anyway, but now at a lower price. Either way, you are happy, or at least you have a way of rationalizing that you did the right thing.
What Is Dollar-Cost Averaging?
DCA (Dollar Cost Average) is a strategy used by investors to mitigate volatility when buying assets. The essence of the DCA strategy is to buy a certain amount of an investment uniformly at a regular frequency.
The DCA strategy, if performed correctly, reduces the trader’s risk if he made a bet at the wrong time. As you know, determining the right time to trade is an essential link in the chain of success, and this is especially evident in an environment as volatile as cryptocurrencies.
By betting on the total amount, an investor can expect a good return, but he runs the risk of losing all of his funds if he entered the market at the wrong time.
But by dividing your starting amount evenly and buying the asset stably over some time, the average price softens. Hence, we get a good strategy for long-term trading.
For this reason, many traders choose Dollar-Cost Average as their strategy and avoid unwanted results.
You should note that this strategy structures your assets, but it does not eliminate the risk of losing investments, as the market gets influenced by other factors that you should watch out for when trading.
How to Create a DCA Strategy?
Determining the right time for a deal is a difficult task, even for professionals. In addition to determining the average dollar cost of the asset you have chosen, you should also consider your exit plan.
- Determine your price range
- Divide your investment evenly.
- Sell these coins as the market gets closer to the target.
This short guide will help you avoid losing all of your funds by building your trade on a timing system.
How does it work in practice?
The best way to demonstrate the benefits is to use an example:
For example, you want to invest $10,000 in BTC. At the start of 2018, you could purchase 0.724 BTC for this amount.
According to the DCA strategy, you don’t buy an asset for the total amount but divide your investments evenly.
Let’s say you decide to buy $1000 worth of Bitcoin in 10 months. Therefore, by the end of the year, you will have acquired 1.22 BTC.
Even a new market participant understands that it is much more profitable than a one-time investment.
Here’s another scenario:
You choose to invest US $120,000 in Bitcoin (BTC) after learning that some friends have made a significant profit since the March 2020 crisis.
As you were aware of what happened during the 2017 crash, you’re skeptical and allows six months to award the position.
By averaging the dollar cost in Bitcoin regardless of news or emotions, you profited 72% and got 0.5178 more from Bitcoin than if you had speculated.
Here is a very realistic example of how someone could have allocated their $ 120,000 investment based on speculation.
Tom (made up name) put in $10,000 to test the waters at the end of November 2020.
At the end of December, he took advantage of his investment and decided to add a more significant position of US $30,000.
After a solid performance at the beginning of January, he prepares to bring more capital to the investment.
Then around the middle of the month, the asset fell, causing many investors to fear the end of the Bull Run.
As fear is rampant, Tesla has announced that it has placed BTC on its balance sheet. As such, he adds a slight increase to his position of $10,000.
February sees a similar move, and Tom fears this may have been the last push. As such, he withdraws half of his base invested capital ($25,000) and leaves the rest, hoping this is not the end of the race.
BTC spends March 2021 recovering, and new support found increasing confidence. Tom feels like he knows the market well right now.
We’ve heard of the BTC halving cycle, and he sees big names like Bloomberg claiming 6-digit Bitcoin by the end of 2021. Tom deposited $50,000 with great conviction.
Last April, BTC hit new highs before dropping below Tom’s buy-in in March. At the end of April, he saw an opportunity to take advantage of the continued rise while lowering his average investment cost.
He placed the remainder of his allocated investment ($45,000) in BTC to anticipate new highs.
While Tom successfully allocated his entire planned investment and made a profit of +46% at a BTCUSD price of $60,000, several errors were due to psychological factors and his inability to time the market.
It’s not his fault; Timing the market is a tricky thing to do, even for the world’s best active managers.
Gunbot DCA Automating Dollar-Cost Average Strategy
Gunbot is a user-friendly robot that can average down your crypto cost while trading on your chosen cryptocurrency exchange.
You can automate the process by activating the Gunbot DCA feature on your strategy settings.
The basic Gunbot DCA settings are:
- Double up enabled: To enable Dollar Cost Averaging on Gunbot.
- Double Up Cap: For the exact amount of Quote Coins you want to buy.
- DoubleUp Cap Count: To tell the bot how many DCA Orders you want.
- DU Method: How do you want to trigger the order? Choose from RSI, High Bollinger Band, or use a percentage number.
- DU Buy Down: To set the minimum price drop, you accept to start Averaging Down your bought price.
You can also trail your Gunbot DCA strategy by going to the “Trail Me” tab on your Gunbot GUI and Enable the “Trail Me DU” setting.
Note: By taking down the average price of an altcoin, you can afford to buy more of it. However, the apparent risk is that you are using more of your total capital, and if the price keeps dropping, it could eat all your funds before it recoups.
Be careful when using the Gunbot DCA feature, and do not use it with a coin you’re comfortable holding for a while or are in danger of losing its value.
Alternatively, you can use the latest Gunbot stepGrid strategy and calculate your trading limit beforehand, so if the coin drops, you’re still covered.
Gunbot DCA Dollar-Cost Averaging Calculator
An excellent assistant in this trading strategy is the bitcoin average dollar cost calculator. With this tool, you get visual confirmation or rebuttal of your predictions.
Note that this strategy shows excellent results in the case of Bitcoin, which displays a constant uptrend.
If you use our automated crypto trading platform, check out the Gunbot Double-Up Guestimator to better understand how your DCA will look.
Dollar-Cost Averaging Benefits
Market absolutes are impossible to predict, even for experts, as they more often hold surprises in store and can be sensitive to things no one could have predicted.
With the costs averaging in dollars, you give yourself the best chance of catching the minimum when that happens without investing all of your money at one point.
In the process, you protect yourself from many of the market fluctuations that can affect many portfolios.
Elimination of the need to guess when the market is bottoming out:
Professionals don’t do things right, so why should there be the added stress of trying to enter the market at the right time?
The proof of the strategy is that many professionals apply it themselves as part of their risk management because it evens out the vagaries of the market.
Also, Dollar-cost averaging helps you stay on track for the long term. By maintaining a long-term focus, you reduce the probability of taking unnecessary risks when investing.
There will be times when the market is going up or down, influencing how you think about your investment strategy.
By maintaining an average dollar cost approach, you prevent your emotions from leading you down a path you don’t need to follow.
For example, if we are in a bull market and you see that all of these altcoins are working, you will not try to invest your money in it with the hope of making more profit.
Other benefits of averaging dollar costs in Bitcoin:
- Avoid excessive exhaustion from taller and fuller positions.
- Take the stress out of betting on market time.
- Temper your emotions so that the FOMO impulses (fear of missing something), the panic of buying and selling get minimized.
- It helps you gradually build your portfolio, which will motivate you to maintain interest, especially in bear markets.
- The impact of short-term volatility diminishes, as historical performance shows the gains you can make over the long term.
- Most of the positive price action is usually contained within ten days of the year, ensuring that you flip over during major upward moves.
An Example Against Dollar-Cost Averaging
As with any approach, the dollar cost average strategy has drawbacks, and many skeptics insist that DCA is ineffective. Of course, this strategy will bring the best results with high market volatility.
Some are sure that this will deprive the trader of profit when the weather is stable. But you should note that investors often do not have a large amount available at a time.
Therefore, investments in small parts are great for long-term investments. Since a DCA investor buys more security assets as the price drops, there is some downside protection in a falling market.
As the market recovers, the DCA investor will recover faster than their lump-sum investor because the DCA investor owns more shares at a lower average price than the lump sum investor who invested before the market begins to negotiate.
Which one makes the most sense to you?
Among other factors, it depends on your goal and how much time you have to invest. It also depends on your risk tolerance and how comfortable you are when investing in the market.
Either way, the key is to stay invested and avoid entering and exiting the market without a proper strategy.
Gunbot DCA Conclusion
Market absolutes are impossible to predict; even for experts, many investors fall into the “buy high and sell low” trap.
As a result, their losses may be more severe than those of the DCA investor who buys smaller amounts when the market is high.
With the dollar-cost averaging, you give yourself the best chance of catching the minimum when that happens without investing all of your money at one point.
In the process, you protect yourself from many of the market fluctuations that can affect many portfolios.
Despite that, some skeptics believe that Dollar-cost averaging is limited; it makes investors lose out on significant market opportunities like the bull run; I think this is precisely what Dollar-cost averaging does.
It kills the common challenge of investors (FOMO). Losing out isn’t the end of the world. Embrace the reliable dollar-cost averaging.
By averaging down, you’re reducing the risk of trading or investing in underperforming coins.
However, there is a risk of averaging too much into an investment that has already dropped in price.
Always use this strategy carefully, and if you want to do it on automatic, you already know about the Gunbot DCA strategy, so don’t forget to grab the best tool for the job now.