¶ How do I decrease profit I want to take based on DCA times?
¶ Before we dive into the next topic, let's re-evaluate what we learned before:
- 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
Learn how to setup DCA in ProfitTrailer here.
Make sure you covered the topic above and studied all the basics regarding dollar-cost averaging before diving into the next topic.
We will now take an example and see how we can use DCA in a smart way!
¶ How do I decrease profit I want to take based on DCA times?
When we apply DCA to our trading strategy, it means we buy more our current holding each time. This can equal more risk, and thus more reward as I mentioned before on our basic tutorial about DCA.
Obviously, in most scenarios.. we want to play it safe. Unless you don't mind ofcourse - which is all up to your personal taste of trading.
Let's however say we don't want to risk all our funds, and play it safe instead.
¶ Let's take a look at the following example:
We created a trading strategy where we make use of dollar-cost averaging. Once we have taken an entry, we will DCA 5 times maximum.
As you may expect, when we decide to DCA 5 times that means our "bag" or exposure, current holding.. what you want to call it - grows - and thus means we need to start paying attention in order to stay liquid. 
One smart way to approach this is the following:
- When we DCA into our asset for the 1st out of 5 times - we will have room to breath before becoming illiquid and can thus sell later (or higher).
This means, the more we build up and get towards our maximum buy times of 5 DCA entries - the more narrow we should put our exit so we can get rid quickly of our holding before things get dangerous.
When we use the approach above, we sell bigger holdings faster - and smaller holdings slower. This means a far target for a small holding - and a close target for a big holding.
Why? you may ask? - Simple:
- A far target for a small holding means we can rise another 10% and take our planned exit. A close target means we only go to for example 1.5% since our holding is so huge that our entire liquidity depends on it - and puts us in a dangerous or risky situation - which makes us want to get rid of it quickly!
Obviously, we should always take pre auctions so we can avoid these kind of dangerous situations, you can do this by minimizing max pairs being traded, minimizing initial cost and DCA cost, all of them together, and many other things... In fact your trading strategy should already be safe enough so you do not have to worry about the risks with DCA.
Yet - selling sooner when we have a lot of exposure is a smart thing to consider - whether we already play it safe from the start or not!
On the opposite side, I do want to mention that if we do decide to keep selling at the same rate, regardless of our exposure - it also means you can make some very nice homeruns if your trade plays out as you wished! Keep in mind things can get risky if you decide to play this way.
¶ An example.
Normally, I would like to exit a trade at 10% profit. But when my asset has reached certain DCA levels, I want to exit sooner.
If I reach DCA level 5, I want to exit at 5% profit, if I end up reaching DCA level 10 - I want to exit as soon as possible! Let's say 1% profit.
DEFAULT_DCA_A_sell_strategy = GAIN
DEFAULT_DCA_A_sell_value_1 = 10
DEFAULT_DCA_A_sell_value_2 = 8
DEFAULT_DCA_A_sell_value_3 = 7
DEFAULT_DCA_A_sell_value_4 = 6
DEFAULT_DCA_A_sell_value_5 = 5
DEFAULT_DCA_A_sell_value_6 = 4
DEFAULT_DCA_A_sell_value_7 = 3
DEFAULT_DCA_A_sell_value_8 = 2
DEFAULT_DCA_A_sell_value_9 = 1.5
DEFAULT_DCA_A_sell_value_10 = 1
- In the example above you can see we have 10 different lines corresponding with 10 different DCA entries.
In other words, we have 10 different exit values for each DCA entry we made.
When we only DCA one time, we exit at 10% profit.
When we DCA 2 times, we exit at 8% profit.
When we DCA 3 times, we exit at 7% profit.
When we DCA 4 times, we exit at 6% profit.
When we DCA 5 times, we exit at 5% profit.
When we DCA 6 times, we exit at 4% profit.
When we DCA 7 times, we exit at 3% profit.
When we DCA 8 times, we exit at 2% profit.
When we DCA 9 times, we exit at 1.5% profit.
When we DCA 10 times, we exit at 1% profit.
Don't forget to get creative when using these values! Experiment, try different ideas, explore and who knows what you can stumble upon. The example above is for educational purposes and in general the very basic. Always use it in every way you want and which suits your trading style.
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.