How a DCA Bot Strategy can help you to turn passive crypto investment into profit

A DCA crypto bot could be your new best friend. Our article looks at how DCA trading can make money for you, while you pay it hardly any attention at all.

  1. What is DCA?

  2. How Does a DCA Bot Work?

  3. How do you get set up?

  4. Can you make money with a DCA Strategy?

  5. Conclusion

 

Interest in investing has grown hugely among ordinary people in recent years, but those new to trading must be careful when they engage with the blockchain markets. 

These digital assets are definitely the future, promising new investment opportunities that have already made millionaires of early adopters and canny speculators, but some caution is necessary as they come with their own unique risks. This being the case and even though they may not be able to generate such spectacular growth in the future as was seen by Bitcoin in the first years after its launch, profit opportunities still exist and there’s a good argument to be made for every investor to include cryptos within a balanced portfolio.

Crypto trading has not just benefited traders. It’s also created significant new opportunities for exchanges and fintech solution providers, and a whole new ecosystem has risen around this burgeoning new digital economy. There has been a fair amount of innovation too, from creators who supply analytics and data to those offering trading tools and automated systems to execute trades. Thanks to these advances it’s now possible to almost leave a computer alone while it gets on with the business of making you money. That’s because computers are great at executing strategies reliably, and one such strategy is called dollar-cost averaging. Let’s explore the implications of a cryptocurrency DCA strategy and examine how it can be integrated with trading bots.  

What is DCA?

DCA rests on the notion that you spread the buying of your investment over different times.

Here’s how that looks:

Let’s say that you want to spend $40,000 on Ethereum over 12 months. You can either buy it all at once, make partial purchases at times when the price looks better, or you can simply spend $3333.33 at the same time every month, no matter what the price is. This last choice is dollar-cost averaging or DCA. 

Etherium could be selling at $400 one month and $350 the next, but you would still spend the same dollar amount every month.

Naturally, your DCA trading purchases can be made on a daily, weekly, or monthly basis. It’s up to you.

So what attracts people to the DCA strategy? Simplicity, mostly. You don’t have to put much thought into it, just a little discipline and consistency. Some traders are ruled by emotion and they might be tempted to panic buy or panic sell if the price fluctuates too much, but with a DCA trading strategy, that’s all taken care of. DCA trading is for people who are into cryptocurrency trading for the long-term. They are not trying to make a quick kill, it’s more about the slow burn, waiting for the asset to appreciate over time. 

Following the DCA trading strategy avoids buying and selling at inopportune times. By dividing your investments up the market highs and lows are averaged out, so the risk is reduced.

DCA crypto is popular because it’s simple, but even with that simplicity, some investors would like to automate with a DCA bot. Let’s face it, even attending to something simple regularly can still be beyond the capacity of those of us with busy lives.

It’s easy enough to hit buy or sell of course, but the time-consuming part involves moving money from your bank account to the exchange and then waiting 

(sometimes for days) for everything to complete, so this aspect of the process is ripe for automation.

How Does a DCA Bot Work?

The DCA bot will purchase your crypto at the frequency you specify. As we mentioned before, this could be hourly, daily, weekly, or monthly, it’s up to you what you go with. It will do this without getting bored too, so that you don’t have to. You can just get on with your day and leave the bot to do its thing. 

How do you get set up?

First of all, find a provider, set up an account, and input all the information necessary for the bot to execute your DCA trading strategy. You can even use your DCA bot to apportion funds during day trading sessions, so it’s not just for swing traders but also for those that are interested in trading more frequently.

So, on the surface, it looks like a very simple strategy that doesn’t take a lot of thought to understand. You can make money from it when the market dips and you can do just as well when it goes up again. Profits are realized from the average purchases, and you can refine the parameters that your DCA bot uses so that it’s effective in different market conditions.

The beauty of the system is in the lack of complexity, and it’s a blessing that you don’t need to fully comprehend it. Understanding the basics is enough to get going with this technique. Different providers offer different DCA bots with their own dedicated instructions, and some will even let you try out your strategies in simulations, which is a great way to learn and test. 

Can you make money with a DCA Strategy?

Yes, you can. It isn’t an exciting strategy, you can make money with it, and it resembles passive indexing, where you buy regular amounts at regular intervals. You’ll need a good amount of funds available to use over the long-term, and you’ll need enough to see you through bad times as well as good. DCA trading is profitable when you’ve got market volatility and upwards momentum in the market. Let’s imagine that bitcoin is selling for $15,000, then it goes to $20,000 then it goes to $30,000, and then it dips to $27,000, then moves on to $37,000 and then comes back to $31,000 then moves again to $30,000. The market giveth and the market taketh away, as they say. One day you can be up and the next day you can be 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 make the gains.

Pros and Cons

The Pros with a DCA trading strategy are clear. Let’s consider them. 

Pros

The main benefit of the DCA trading strategy is the fact that it saves you time. There’s no need to be overly concerned about the market and what’s going on with it because your only concern is whether you think it will go up over time.

We are assuming that you have set it up for the appropriate frequency and have sufficient funds to make it work over a longer period. You’ll only have to do this once and then from that point forward it will just be a matter of tweaking the strategy to get the most from your DCA trading. 

Potential Gains

You’re going to make money from this strategy if you believe that bitcoin will trend upwards. Of course, it could be another crypto asset, but whatever you’re investing in, you don’t mind if it goes down in the short-term, as long as it rises in the long-term. You will be buying more of it along the way and profiting from the price rise.

Cons

Patience

DCA trading requires you to stick with it, and some people find this difficult to do. You’ll be sitting around waiting for your automation to make its buys, and that’s pretty much it. Even if the market goes down by $2000 you leave the investing to your DCA bot. The only time you’ll be paying it any real attention is when your investment rises in a year or two. 

Missing Out on Big Profits

Although DCA trading comes with less risk, you do need to be sure that you hold your nerve in the face of dips. You are looking to make considered and regimented bets, holding out for a long-term gain, but if you are leveraged then you need to be able to accommodate the ruinous dips that can occur too, so some sort of failsafe is required to keep you safe from a perpetually falling market.

Conclusion

DCA crypto trading is one where market swings are to be welcomed. There are some downsides to this kind of strategy if your risk tolerance is high, but a lot of people swear by it because, for the most part, it lets them trade in a carefree way. 

DCA trading is passive so it removes active management fees. It’s great for people who want to earn income and can afford to add to their investment at regular intervals. 

Anyone taking part in DCA crypto trading must do so with the belief that it is sustainable for them as a long-term venture. If you feel confident that you can go in with this in mind, then it can be an attractive minimal risk entry point into the sometimes-volatile world of crypto trading.

It can seem a little daunting to always be feeding your account with funds to invest, but if you think about it people do that all the time anyway, buying gourmet coffees, or meals out on a regular basis, so if you can afford to do those things then you should be able to invest similar amounts regularly. Aside from this, if you are happy to let the DCA training handle your crypto transactions for you then this could be the best trading strategy for you.