A Dollar Cost Averaging (DCA) strategy is an investing strategy that can be used to reduce the risk of opening a position at one single time. DCA Bots are automated programs that use a highly strategic, yet simultaneously simple technique to invest in a fund, stock, or in this case cryptocurrency, to reduce the risk of opening a position at one single time. A DCA strategy buys or sells a currency at preset intervals, aiming at improving the entry price of a trade over time.
By using DCA strategies, you can get rid of the ambitious work of trying to determine the perfect timing and price when it comes to the market.
Once you have configured your DCA bot on Mizar, it will automatically open positions on your behalf according to the parameters that you set.
If you have $10,000, you can follow one of the 3 options:
- invest them all at once: you invest $10,000 while the price of BTC/USDT is $20,000. The average buy price is $20,000.
- split the investment over time: you invest every 6 days $2,000. At the moment you bought, the prices were $20,000, $22,000, $21,000, $16,000, $14,000. The average buy price is $18,600.
- invest based on some triggers: you invest every time the price drops by $2,000. That means, you buy $2,000 at $20,000, $18,000, $16,000 and $14,000. The average buy price is $17,000 and you still have $2,000 free to invest.
At the end of the month, the price goes back to $18,000. In the first case, you lost $2,000. In the second case, you lost $600. In the last case, you won $1,000 and you still have $2,000 for going on holiday!