How NOT to Lose a Single Trade Using Dollar Cost Averaging

in bitcoin •  11 days ago

Dollar cost averaging (DCA) is a technique widely used by traders. The idea behind DCA is that as the price declines you buy more and more on the way down in order to limit your losses and increases your chances to get our of a trade quicker. There are different styles of DCA however, I will only focus on one which is doubling down. For example, you buy 1 coin at 100$ and the price drops to 99$. You are down 1% and you go ahead and buy 1 more coin at 99$. Right then you have 2 coins and the average price of them is 99.5$ while the current price is still at 99$. So, now you are down 0.5% and you will be breaking even at your trade at 99.50$ instead of 100$. The idea follows, as the coin declines in price you buy more;

1st buy - 1 coin

2nd buy - 2 coins

3rd buy - 4 coins

4th buy - 8 coins

5th buy - 16 coins

6th buy - 32 coins

and so on as long as your gut takes. It is a scary idea to be buying as it goes down. This is a high risk high reward strategy. IF you do it properly though, you will NOT have a single losing trade. As you double down on the way, it is important to take a note of your whole balance and your 1st buy because if you have 10,000$ and your 1st buy is at 1,000$ then you will run out of balance before being able to DCA 3 times. If you are planning to do DCA, go small and naturally with doubling down it will increase down the way yielding a big return. 

Trading 5 minutes candles

When you are trading in 5min candles, you want to have a tight DCA percentage. You should be looking at buying every 1% drop in price. Thus, the bag that you are holding will never go below -1% and will let you get out quickly. Usually 1-2% jumps are expected quite often in 5 minutes candle.

Trading 30 minutes or 1HR candles

When you are trading 30 minutes or 1HR candles, you do not have to be as aggressive as 5min candle. You should be looking at buying every 3% drop in price. Longer period has a better chance of recovering more than 3-5%.

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I guess your assumptions are correct as long as you have unlimited funds and can continue to buy new lows. At some point you run out of money and no methodology can save you. And for a product that continues to see downward trends with not a lot of positive news later you need more than this.

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If your initial investment is 10$ you can double down and hold against 20% drop. Since you are trading 5min candles, there won’t be a 20% decline without 3-5% reversal and that’s when you get out.

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Agreed. Its a very useful technique if you are trading on a longer time frame. Most people don't have the patience so it definitely isn't for everyone, but it is in fact the most effective way to approach the market if you wanted to make sure you got a great averaged entry point.

welcome to steemit friend.Want to see more posts on future.Good luck @rdnblogs

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thanks mate. I am posting almost every day stayed tune!