DCA: Using Bots to Invest in Crypto While You Sleep - Reading time: about 4 minutes
“Time in the market beats timing the market.” Any investor or trader worth their salt has, at some point in time, probably heard this quote. This proverb holds especially true in the highly volatile crypto markets, with token prices prone to large swings. What are the best ways to weather the storms and come out on top, you might ask?
Building a crypto portfolio involves more than just tracking the markets and buying tokens at random. As far as investment or trading strategies go, dollar-cost averaging (or DCA for short), provides investors with a steady way to build a portfolio.
In this article, we’ll discuss what dollar-cost averaging involves, why you would want to consider DCA over lump sum buying, and how you can automate dollar-cost averaging with a DCA bot.
What is DCA?
Dollar-cost averaging, or DCA, is a popular investing strategy which involves recurring buying of an asset over a fixed interval. This interval can be anything from hourly through to monthly, and stands in contrast to lump sum buying, which is where an investor buys one large sum of an asset at once. With DCA, there is rarely any need to target specific buying times; buys can be executed consistently, spread out over a predetermined period.
Why is DCA preferable over lump sum buying?
The main advantage of DCA is that it lessens the impact of price swings on the average buying price of a token, allowing for more favorable asset yields over the long-term. The key principle that makes DCA a preferred investment strategy hinges on market volatility and the lower average buying prices that you can benefit from if you invest over time.
There are other advantages, too, such as fostering a disciplined approach to investing. Monthly or weekly asset buying can build a habit of regularly setting aside capital specifically for investment purposes. Moreover, it removes the temptation to try and time the market or buy according to prevailing market sentiment, which is often driven by emotion. By investing regularly over a long period, investors can potentially benefit from compounding returns and dollar-cost averaging.
Dollar-cost averaging in practice
Let’s assume you have $10,000 and decide to invest $2,000 at the end of every month for five months.
If prices at the time of each entry were $10, $11, $7, $9 and $8, your average coin price would be the average cost of entry at $9.
Had you invested the lump sum of $10,000 at the beginning of the term, you would have paid $10 per coin (10% more than the DCA result of $9).
Why automate DCA buying with a bot?
Automated DCA buying offers significant advantages to manual DCA buying, such as:
By automating the DCA process with a bot, investors can ensure that they never miss a scheduled buying opportunity. This helps to establish a consistent investment strategy which in turn can lead to compounding returns over time.
- Reduced human error
When investors make manual investments, there is a risk of human error, such as forgetting to make an investment or investing an incorrect amount. Automating the DCA process with a bot eliminates this risk of human error.
- Customizable parameters
DCA bots often come with customizable settings that can be tailored to an investor's specific investment goals and preferences. This allows investors to choose the cryptocurrency they want to invest in, the frequency of investments, the amount to invest, and more.
How to automate DCA buying with a bot
The easiest way to ensure that you never miss a DCA buy is to use a bot to execute your orders for you. ProBit Global makes this a breeze with Deltabadger, one of the most advanced dollar-cost averaging bots on the market.
Using a DCA bot, anyone can set up automated hourly, weekly, or monthly buying strategies for most exchange-listed tokens. DCA bots utilize exchange APIs, with detailed set-up guides to walk you through the process. These APIs are limited in the permissions that they grant the bot, although it is always worth noting that exchanges are not liable for the usage of the platform and any resulting financial losses, if any. It is always best advised to do your own research on the security features of any crypto bot and their reputation as a company before installing them.
The smart interval option on Deltabadger can direct the bot to place all orders according to the minimum order size permitted, essentially prioritizing order execution at the minimum allotment as opposed to time frame. This is to say, it always performs the smallest order allowed by the exchange but modifies the time between transactions so that you can buy according to the ratio you want.
By using the limit order option, DCA bots can be programmed to place orders at a specified % below or above the price for an automated buy-low, sell-high that can also be strategically placed to offset transaction fees and market spreads.
While bots have clear upsides, they should not be considered a means to maximize profits. They should instead be used as part of a long-term investing strategy to eliminate any panic buying or attempts to time the market. While price fluctuations in the crypto markets may abound, you can rest easy knowing that a slow and steady approach will net you small gains which can easily add up over time.
Overall, dollar-cost averaging is a tried-and-tested approach which works well for both new investors and veteran traders, mitigating the risks that come with trying to time an entry point into a volatile market. Using a bot like Deltabadger to automate DCA buying further simplifies the process, making investing in crypto an efficient and enjoyable experience. By reducing the risk of human error and providing valuable insights into market trends, bots can help investors to make better investment decisions and achieve their investment goals. Try it for yourself today.