The main strategy in dollar cost averaging (DCA) bots is the purchase of a certain portion of assets after a determined price deviation. Usually, most people will try to use the DCA trading approach during a short-term market downturn. The DCA strategy can reduce the risk of investing too much money at one time.
To use DCA Bots, you first need to determine how much money you are willing to invest, and then you need to buy a small amount of equivalent currency within a certain period of time, instead of investing all your funds at once. In the longer term, the average price of all assets in your wallet will balance between the top and bottom prices.
Advantages of Dollar Cost Averaging
DCA is usually advantageous. It allows you to buy at a low price and sell at a high price.
DCA strategy allows to reduce the risk of investing in turbulent markets. Based on your market performance when you make a purchase, DCA can enable you to reduce your losses, or it can help you increase your profits. DCA tries to prevent you from buying high-priced goods and sustaining losses for a long time. Most significant advantage of DCA trading is less emotional pressure of all-in at a single price.
As the risk decreases, the benefits will decrease, but if you are optimistic about an asset in the long term and are just looking for a way to easily hold it, it is worth considering the dollar cost averaging.
Disadvantages of Dollar Cost Averaging
In extreme bull markets like the current time for bitcoin, investing all capital at once may be better than the average price over a period of time. DCA strategy can cost investors profits when the market performs well. For example, during the bull trend, it can be assumed that those who invested earlier will get better results.
Wunderbit DCA Bot
An automated crypto trading platform – Wunderbit Trading offers two options of using a DCA approach.
First, it is possible to set a one-time bot from the Terminal by setting all necessary settings to have a powerful Wunderbit DCA bot. In this case, the bot will stop its functioning after the DCA trading cycle is completed.
Second, it is possible to set a DCA bot from the Bots section, where a starting point of an order will be a signal to open a trade. Like other signal-based bots (including TradingView trading script) , DCA bot will trigger a DCA trading cycle every time a new signal comes in.
Both types of DCA functionality is available for crypto copy-trading on Wunderbit, meaning that every DCA strategy created by the trader will be mirrored to Copy-Trader.