The speculation markets see a significant rise in activity overall as more people enter into it and aim to seek their riches. Traders must watch out for different aspects such as innovation, solvency, and other components in the new paradigm that is the blockchain markets.
The better the rate of adoption, relevance, and strength in the markets, the higher the multiple on digital asset. If they are able to assess the markets appropriately, then they can see great growth within their portfolio.
These speculators are bolstered by the growing ecosystem of entities who seek to build out the necessary environment for this digital asset process to reach its intended heights.
That is why it is not just traders who are stepping into the markets but those who will provide the proverbial picks and shovels such as exchanges and fintech solution providers that seek to capitalize on this growing trend.
These creators range from those who will supply data and analytics to those who will provide tools to improve your trading experience with automated speculation programs. Many conveniences that are present today were elusive in the past. Conveniences such as leaving your computer to trade for you might not have been as prominent in the past.
But now it is and that brings about the opportunity for even more conveniences that help traders make the most of their lives.
These conveniences include options such as various features and improvements to save time and earn by following a simple strategy. One of these components is that of the dollar cost averaging strategy that employs many different traders due to its ease and simplicity.
Let us find out more about this cryptocurrency DCA strategy, how can this be used with trading bots, and why people employ it for themselves in their regular course of investing.
🔎 What is Dollar Cost Averaging
DCA is the idea that you will buy the same portion of assets at all times. What does this mean?
Here’s an example:
Let’s say that you want to buy $50,000 worth of Bitcoin over the course of one year. You have two options you can buy it all at once (if you have the money) or you could buy it at strategic times when the price is at an appealing level.
Of course, there is one more option, the idea of placing $4,166.66 into the market each month regardless of the price.
That last option is called dollar cost averaging. This third choice makes it to where you input money and buy it regularly and average the cost of the asset over time. Bitcoin can be $15,000 one month and $10,000 the next month but you still stick to a plan and buy the same dollar amount each month.
Of course, in dollar cost averaging the time intervals can be daily, weekly, or monthly but it is always the same interval and the same amount invested each time.
You might wonder why would people use this DCA strategy? The primary reason is because it is simple. The action does not require that much thinking. All it does ask is that you stay disciplined and consistent in your activity.
People turn to this so that they can take emotion out of the picture. They do not have to worry about panic buying or panic selling when the market fluctuates, saving them money in the long-term.
These people are interested in staying in cryptocurrency for the long term. They are not interested in buying everything at once and then holding on for dear life. This is not their intent and they would rather not engage in gambling. The idea here is that it is not about timing the market but time in the market.
If you follow this strategy wisely, then you are able to minimize your risk of excessively buying at the wrong times or excessively selling at the wrong times. You do not want to jump in when the market is at all time highs, nor do you want to increase risk when the market is sinking further. Instead, you slice your investments up and minimize risk through proper distribution of capital over different time intervals.
DCA is a compelling strategy and it is something that you can do every single day or every single month by yourself. But still, people turn to automated bot trading units with this simple strategy and they do so for one single reason.
It is cumbersome and they might forget to do it as life will certainly get in the way of even the simplest of strategies. Remember that it is not about the fact that it is time consuming as it only takes a second or two to login to the app and press buy.
The tedious process is about transferring money from a bank account to an exchange and waiting for several days in some instances, then hoping that everything is alright with the entity so that you can purchase and go on with your day.
That is why people turn to an automated program to do the work for them on a regular basis.
🚀 I am testing the DCA strategy with real money investment on the paid trading bot plan. Make sure to check it out.
🦾 DCA Bot, How Does It Work?
The DCA automaton will make purchases on your behalf at the time interval that you specify.
As noted earlier, the time interval can be an hour, a day, a week, or even every month. It will stick to a routine in a robotic manner letting you think about other activities and ventures. Essentially, it acts disciplined and stays focused on a specific task so you do not have to do so.
So how does it work?
You start by working with one of the providers of this type of automated program. Then you input the specific information that you think is relevant to your situation. What we mean here is that you will input or select settings based on how frequently you want to buy. Is it per day? Is it per week? Is it per month?
You will notice that this method of DCA will enable you to allocate funds even during day trading sessions. It is not only for those that are swing traders or other types of traders but for those that also have a higher frequency of trading interest.
As you can see, the process is quite simple and does not require as much mental faculty to comprehend. You are able to reap the benefits of this strategy when the market dips and you can thrive when it goes up. Why the value of your investment goes up over time.
Profits come from the average purchases.
One can also make sure to refine and fine tune the bot to make the most sense in varying market conditions.
The beauty is in the lack of complexity.
Thankfully, you do not have to understand it fully and know just the basics before you can proceed to execute this technique. Different brands provide detailed instructions on what you should do and can help guide you in this process. A few even go a step further and enable you to use simulations to comprehend how they can work out for you.
🤖 Best DCA Crypto Trading Bots
💰 Is DCA Strategy Profitable?
On the face of it, the DCA bot strategy is profitable but it is boring and fairly simple. It is similar to passive indexing strategies where you simply buy and continue to do so at regular amounts into the future.
Individuals must simply have a good portion of funds to deploy into the market over a longer timeframe with this strategy. Preparing in advance with the right funds to withstand dips and great times is where the strategy really pays off.
If we think about it, we see that DCA is profitable as long as there is volatility and positive momentum upwards.
Think about it.
Let us say that bitcoin is worth $30,000, then it goes to $35,000, then it goes to $40,000 and then it dips to $35,00, goes to $36,000 and then comes back to $33,000 then moves again to $40,000.
The market gives and takes away, one day you are up and the next day you are down but you continue to buy regardless because you think it will trend upward over the long term. That is where you generate the value and earn the gains.
👍 Pros and Cons
The Pros with strategy is quite obvious, let us find out what they are right now.
Pros
Time Savings
Is the primary driver of this strategy. You do not have to worry about the market and what it is doing as long as you believe the market will go up over time.
The next assumption in this strategy is that you have set it up for the right frequency that you prefer and have the right funds to deploy into the market over the long term. The only work is in the initial set up and different tweaks one must do to adjust.
Traders like yourself will not have to come back every single day and increase their anxieties or blood pressure over the current state of the market.
Likely Gains
Are present with this strategy if you believe that bitcoin will trend up. That is the main belief. That bitcoin or the asset that you are buying will trend up even if it goes down in the short term. If that is the case, then the more the price dips, the better it is for you because you are able to buy lower and have more of the asset as it goes up.
The positives of this strategy are very strong as this is one of the soundest strategies for a large portion of investors.
Cons
Patience
The DCA strategy will require patience on your part. It is not an extra active strategy as it requires you to wait as the automaton buys over time. That means that you will not get involved and try to time the market, buying a significant portion when the market goes down to $3,000 in hopes of making 3X gains within a year or two.
Missing Out on Massive Gains
While there is less risk with a DCA strategy so as long as the main assumptions remain true, you want to make sure that you do not have any reason to have any market timing regrets.
For instance, you have conviction that the digital asset has a bright future and that dips are your friend. At the same time, you know that you want to minimize your risk and not bet too excessively at the present moment.
A market dip can be your friend or your enemy if you are leveraged. An option you are likely to use if you have those active management tendencies.
📢 Conclusion
In a dollar cost averaging strategy, the swings of the market are your friends. There are drawbacks to this strategy if you have a higher risk tolerance. But many people appreciate this strategy because it lets them participate in the markets without having to wake up in the night time in a state of panic.
It is passive and it might be more beneficial as it can minimize fees from active management as well. It works out for those who have the ability to earn income and then continue to add funds to their account to DCA each week or month.
Participants must be of the opinion that this is a sustainable and viable long term market to use it. The fact is that this stratagem is tried and true and makes it possible for many people of different income backgrounds to have and hold a piece of precious digital assets such as bitcoin as it moves forward and backward in the short term.
People are able to expend money as they do on a regular basis, like they do for a small luxury like a drink from Starbucks, or a small daily buy of a croissant from a local French bakery on the way to work. Finally, automation in this process is your friend and can help you become a holder of specific assets of your choice.
It is a little action done consistently that adds up over time.