February 1, 2023 While it’s common to see traders use various tools, techniques, and strategies that differ across the board, there is one strategy that we believe every trader should consider adding to their arsenal, especially in a bear market!
Dollar-Cost Averaging, better known as DCA, is the subsequent periodic purchase of a security irrespective of its trading price.
DCA has been a popular strategy among the savviest investors for quite a while. It has proven its effectiveness compared to other plans, such as trying to time the market bottom and making lump sum investments when the time “feels” right. It’s known to many as a way to mitigate risk.
DCA is undoubtedly a powerful method, as this quick example below shows.
In scenario one, if someone has $1,000 to invest and decides to use the entire amount to buy their favorite crypto in one purchase, which is $10 each, they would have a hundred shares at a cost-basis (average share cost) of $10.
On the other hand, in scenario two, you may have someone else who decides they will buy $500 worth of shares every month for two months.
They purchase 50 shares at $10 each in the first month, equalling $500. However, in the second month, the price of the shares fell from $10 to $5, so they were able to buy 100 shares at $5 each, equaling the remainder of their $500.
Scenario 2 ended up with 150 shares (50 first month, 100 second month), while Scenario 1 only ended up with 100 shares.
Traditionally, an example spread across extended time frames would be more suitable; however, given the nature of crypto, especially during a bear market, we found this one fitting.
Whether one’s an aspiring day trader, a periodic swing trader, or even a full-time day trader, one thing is true for each category, our emotions get in the way.
When that happens, our logic and ability to process even the simplest of decisions go right out the window, which can cause us to make rash decisions and lose money.
We may have had our eye on a retracement target for quite some time; however, for some reason, upon retracement, we decide to wait until it goes just a bit lower to “go all in.”
Then, a whipsaw candle spikes up, leaving us with a “we just missed the bottom” feeling.
DCA is essentially a plan that brings structure to one’s investment strategy in an auto-pilot manner, relieving one from the duty of having to obsess over this allocation of funds.
A common phrase you may have heard is, “time in the market beats timing a market” – simply put, those who can time an exact market top and or bottom successfully and go all-in at the right time are slim to none.
Overall, the goal is to get the lowest cost basis possible, and one way to help increase the odds of this happening is to begin DCA in a bear market instead of a bull market.
While every trading strategy is vital to the trader itself and the market conditions at hand, there are noticeable similarities and differences between traditional trading strategies and using a DCA bot.
DCA bots offer investors the ability to automate the very popular dollar-cost average strategy, which is a more conservative approach to trading than traditional trading as it is more systematic with pre-determined intervals and purchase amounts.
DCA bots also trades with one strategy in mind and does not take into account technical indicators, resistance lines, and other charting tools. It’s a simple yet effective trading strategy, buy low, sell high. The goal of using such a strategy is to make many small wins that, over time, add up.
Traditional trading strategies, on the other hand, commonly include many technical indicators, trading strategies, what-if scenarios, stop losses (sometimes trailing), and can get very complex. However, the profit opportunities in one trade alone can be very rewarding. In fact, one good trade can make a trader’s entire year!
Of course, there is always a caveat with such risks, and that’s precisely why this type of trading requires more experience and skills to be successful. An effective trader who leverages the traditional methods has to be able to read charts, resistance, and support lines, along with knowing about momentum, volume, and many other indicators.
In short, the amount of time, due diligence, and “practice” usually takes much longer to adapt to than using a method such as an automated DCA bot.
DCA trading bots can be used in both bear and bull markets due to the nature of its “simple” spot purchasing methodology. Not only can you use it to ladder down purchases during a downtrend to sell those positions on the next swing up during a bear market, but you can also apply the same principle on pullbacks during bull market rallies.
In fact, if you are trading during a confirmed bull market, it may be easier, or at least provide some relief knowing that buying on the way down will “almost” ensure profit-taking opportunities on the next surge upwards.
There’s a reason why the DCA is considered one of, if not the safest, investing techniques known to man for decades on end. For those questioning why DCA works or how effective it is – it is highly uncommon to find a strategy that is just effective in a bull market as it is in a bear market and vice versa. Now, the question becomes, who is it best suited for?
The short answer? Any and every type of trader. Whether you’re a beginner, or a seasoned trader, using a DCA bot can benefit every trader if used properly. Even for those who are newer to the world of trading, there are tutorials, walk-throughs, and other resources aimed to support them.
For the more experienced traders, many may tend to shy away from using a tool such as a DCA bot due to its simplicity; however, it can be the very balance needed to help them mitigate risk, especially if they are using more risk-prone methods like day trading.
Even then, regardless of experience, due diligence, research, and patience should always be practiced, especially when implementing a new strategy, and the same is valid for using this type of bot despite its conservative nature.
As a trader, one of the primary goals to focus on is balance, which flows into capital preservation and risk management. Consider it an umbrella of protection that leveraging a DCA bot can and does provide.
The benefits of a DCA bot are clear, but like with any craft, the tool used is only as productive as the technology behind it. You have the instrument, and now it’s time to focus on how you can use it to its full potential for maximum profit-making opportunities.
Having a plan before you enter any trade, large or small, is always wise. With that said, planning the frequency of your buys with a DCA bot, along with the number of lot purchases and the amount that will be used with each one, is vital.
Of course, the capital you are trading with also plays a large part in this. Still, even then, proper capital management can always be broken down into percentages of the total capital you’re willing to allocate to this strategy.
For instance, if one decides to trade with $100 using a DCA bot, they may choose to spread that $100 out over ten ladder buys down, with each purchase equaling $10.
Applying the same example, some traders may choose to do twenty buys at $5 each, mitigating their risk over a more extended period in case the position falls below their intended price target zone.
Regarding the upside price movement, when it comes time to sell, there are also options to seek immediate profit for the lot purchased on the downtrend. For instance, say you placed buys at $1, $0.90, and $0.80. You could set the bot parameters to sell the lots purchased at $0.80 once the price hits $0.85 for a small but quick profit and apply the same method for the lot purchases at $0.90 and $1.
Some traders may choose to place one bulk sale at a specific target range regardless of the various lots entered on the dip. Clearly, the more advanced a trader is, the more advanced their strategy and take-profit techniques tend to be as well, even when using a DCA bot.
In our “Winning Trades Under Any Market Condition,” we shared our thoughts on how we felt that a trader should be able to profit in any market condition: bull, bear, or even sideways trading market.
Well, you can award another point to the bear market category for us because, in our eyes, a bear market is perfect for DCA’ing.
In a bull market, the price of the asset you are periodically purchasing will more than likely increase in price, thus raising your cost basis versus DCA in a bear market, where the chances of the asset’s price will likely decrease over your periodic lots (asset purchases) resulting in a lower cost basis.
This average price-down mentality is optimal for those looking to add coins to their hodl bag, even if they are classified as day traders.
Of course, just like every other strategy, there is no one-size-fits-all when it comes to DCA; it can and is deployed in various forms and fashions.
To prove how much of an advocate we are for DCA, we’ve put our hard work where our mouth is and are pleased to announce the roll-out of our newest trading feature, the DCA Bot.
We’ve told you why we thought it was an effective strategy and even shared in-depth insights; now, we want to give you the last piece of the puzzle, an actual custom-built DCA Bot that allows you to start taking advantage of this strategy immediately.
Cornix Advanced DCA Bot was built to provide additional strategies and opportunities for our community members to thrive during every market condition.
When Cornix Advanced DCA bot is active, the trader will be in an open trade, either periodically purchasing lots on price decreases or waiting for a sell to fill once the asset’s price has rebounded to a place of profit.
Once a trade is complete (the trader has taken profit, or a stop-loss was triggered), a new trading cycle will begin.
At Cornix, our goal is to build flourishing traders, and we know that this can only be done if we provide the necessary knowledge, tools, and opportunities to our community.
We understand that not everyone has the same trading background experience, and we created our Advanced DCA Bot with that in mind.
For those who may not be as comfortable establishing their own DCA parameters and rules, we’ve integrated an option that allows you to copy and initiate the most successful proven DCA strategies that top traders use with just a few clicks.
And for our advanced traders, you won’t get bored, we promise.
Get as technical and spend as much time customizing your DCA Bot as you’d like.
It’s time to sidestep the FOMO and market volatility – whether you think we’re headed up or down next, now may be the best time to start your DCA journey.
Copy a Public DCA Bot, or create your own; try it for free for the next 14 days; no payment information is required.
