¶ What is DCA and how does it work?
- Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. - Investopedia.com
DCA can be used dynamically to buy additional amounts of a particular coin, as it decreases in value, in order to lower your average combined purchase price for the coin. Be aware that if your DCA buys go past all the levels you set or skip any numbered levels, DCA buys will use the default un-numbered settings.
¶ Introduction
ProfitTrailer gives you the opportunity to dollar-cost average into your assets. It contains a seperate tab entirely dedicated to the DCA settings (located under Active Config). This is where you insert commands such as your buy and sell strategies and DCA-levels, and so on.
Most of the logic in Pairs will also work in DCA. However, it is important to mention _ DCA _ in the line of code for it to function properly.
Learn how to setup DCA in ProfitTrailer here.
¶ The idea behind Dollar-cost averaging.
In this section I will explain how we can use Dollar-cost averaging to our benefits, and why.
Let's visit this easy example:
We can setup ProfitTrailer to buy a small amount of ETH. And then command it to buy more ETH when it has dropped a certain percentage (for example -3%). Doing this, we are able to aquire more ETH for a cheaper price and thus sell it sooner or sell it for a bigger win.
- However, notice that I mentioned "buying a small amount" to start with. Why do I say this? Because if we tend to go deeper and keep on buying buying buying.. It also makes us more exposed and puts us in a risky position whereas without Dollar-cost averaging we only stick to the amount of ETH we bought the first time.
You can view this from a positive or negative aspect. Positive as in: aquiring more for a cheaper price = flipping quicker for a nice win. OR negative as in: aquiring more and losing more when the trend is fighting against our ideal outcome... Please be careful.
It is important to calculate beforehand how much you want to spend, and how much risk you are willing to take. Please do your research and remember to play it safe. DCA is a fun tool and can be fantastic when used properly, but it can also be a very dangerous tool when you get in the position of being too overexposed and possibly losing all funds.
Lines of code such as DCA MAX COST, DCA BUY COST, and the original INITIAL COST in the Pairs tab will help us get a long way. There are limitless opportunities available so make sure to read all of them using the config page (tagged with DCA).
Read more on DCA buying to get an idea of what strategies people use, or to find out which types of ways can be interesting for your own setup.
¶ Translation.
As we mentioned above, most of the logic that we use in the Pairs tab agrees with the logic we use in the DCA tab.
However, there is one important aspect you always need to keep in mind:
- Every line of code needs to contain _ DCA _. Whereas the lines in Pairs can be used without.
Let me give an example:
In Pairs you use DEFAULT_buy_strategy = RSI, in DCA you should use DEFAUL_DCA_buy_strategy = RSI instead.
Take a look below:
Confirm you are using DCA by double checking. Dollar-cost-averaging will not work as intended if you do not provide _ DCA _ in every line of code.
¶ Setting up DCA in ProfitTrailer.
Let's start from scratch and help you set up a proper DCA logic. From here on I assume you have finished a basic strategy and have set up everything correctly in Pairs and Indicators in order for this to work.
- There is a particular line of code that "rules them all" when it comes to using Dollar-cost averaging in ProfitTrailer.. It is required in the PAIRS tab to activate the DCA process:
DEFAULT_DCA_enabled = true(Usingtruein this line will enable Dollar-cost averaging. Usingfalsewill disable it).
- Now we officially enabled the DCA function in ProfitTrailer. All of your positions will automatically apply for the conditions met in the DCA tab and follow the instructions which you wrote there. Once again, I point you to this page in order to find a logic that suits your type of trading, or the config page to explore more possibilities.
Attention: We always suggest to run your bot in Test Mode for a few weeks before really taking off. Just to make sure there are no mistakes left in your code and to avoid unnecessary losses or wrong entries and/or exits.