What is DCA?
Distributed cost average is an approach to buying assets in several chunks instead of purchasing a whole lot in one go. If you make a series of smaller purchases over some time during an overall descending trend, you will reduce the average price of an asset and won’t miss out on an opportunity due to indecisiveness.
DCA is employed by many BTC enthusiasts since it is an easy way to slowly build up a sizeable portfolio using weekly wages or other periodic income. However, the general principle of splitting a market position into a series of sequential orders is a great way to reduce risks and make money consistently. Depending on your budget, you can dramatically improve your returns.
WunderTrading offers a wide range of specialized bots. DCA bots are quite versatile and can be used in a variety of ways. Optimizing their performance according to your personal preferences and trading experience is an important step toward consistent profitability.
What is the best DCA bot?
The simplest answer to this question will be “the one that works for you”. The market is saturated with the offer. WunderTrading provides excellent automation tools that can be extremely efficient when used under the right conditions and with enough expertise on the client’s part. Since bots only follow the instructions conceived by users, they can be only as effective as their owners’ strategy.
When it comes to technical aspects, WunderTrading’s bots run in the cloud. They analyze inputs from TradingView and execute their programming instantly making them some of the fastest bots that a retail trader can utilize in their system.
How do you set up a DCA bot?
To start using a DCA bot, go to WunderTrading and log in. If you do not have an account, create one by providing your email address and creating a strong password. From here, you will need to follow this step-by-step guide:
- Go to “My Exchanges” and click “Add new”.
- Select the type of account (e.g. BINANCE-SPOT).
- Enter your API and Secret keys or any other necessary information.
- Go to “My bots” and click “Add new”.
A window will appear where you will need to set up a bot. The free plan available at WunderTrading allows users to create up to five different instances of bots, but they will be limited in functionality. It is necessary to upgrade your plan to a paid one to use the DCA feature that you will find at the bottom of the settings page.
Setting up a perfect bot
Creating a functional bot for crypto trading is not as complicated as it seems. Trying to find the best DCA graphics settings when you want to fly in the virtual sky on the best jet in the world. It can be tough to find the right settings for a video game, but it is quite easy to set up a DCA bot. There are only several important factors to consider.
In a new bot creation window start filling in the fields:
- Add a name to the bot to identify it among your other bots.
- Choose your preferred exchange and the API connection.
- Select appropriate time frames and pick currency pairs you will work with.
- Adjust take profit limits. It is recommended to follow your strategy.
- Adjust stop loss limits. It is recommended to follow your strategy.
- Connect your bot to TradingView as instructed in the tutorial.
- Click “DCA” at the bottom of the window.
- Click “Create” to launch the bot.
Note that most of the values for the settings you will extract from your trading strategy. If you have a functional system that you tested on TradingView, you should also look at which take profit and stop loss values are the best for it. You may choose to pick them based on the percentage of your total order size or the average asset price over a specific period.
There are four additional parameters that you need to adjust to create the best DCA bot settings for WunderTrading:
- DCA order count is the number of positions that your bot will create.
- DCA order price deviation is a specific value determining when a bot should place another order. It is expressed in percentile points.
- DCA order volume multiplier is a value that determines how many times the next order should be multiplied in size. It is great for strategies like Martingale if you want to try them.
- DCA order price deviation multiplier is a value that affects the size of sequential orders based on the price deviation and chosen multiplier.
Many consistent strategies usually do not change multipliers and stick to a steady pace of utilizing a set portion of your total portfolio to make relatively small market orders. However, if you want to increase the risk and potential rewards, you should think about multiplying sequential orders and creating a series of riskier orders to maximize profits.
Take profit and stop loss are two great tools that allow you to control risk and create reliable strategies. It is a good idea to keep your stop loss at about 10% — 15% to ensure that your market positions do not create holes in the portfolio when a strategy stops working due to changes in the financial environment. On the other hand, not being greedy to take profits is also a solid long-term plan.
How does a DCA bot make money?
One of the biggest advantages of any automated trading system is its consistency. Human traders make mistakes and hesitate to miss out on valuable opportunities. Bots make decisions without any delay and remove the human factor from the equation.
When it comes to methodical strategies like DCA, it is a good idea to automate parts of the process that usually require a lot of repetition. Three factors make bots great at making money using strategies like GRID and DCA:
- Bots never miss signals. A strategy deployed on TradingView regularly creates alerts, but humans may miss them because they need to sleep and have other issues to deal with. Bots react to alerts instantly.
- Bots strictly follow instructions. The desire to make immediate changes to a working strategy is what ruins many portfolios. People tend to break their own rules when trading due to their innate emotionality.
- Bots do not increase risks. Some retail traders forget to place stop-loss orders and may want to risk more money when they feel that there is an opportune moment to do so. While it may work occasionally, it increases risks over a longer period.
These factors are true, but the outcome of using bots in your trading routines depends wholly on the quality of your trading strategy. A bot still needs a starting point that will be generated by an alert on TradingView or created manually by a user. A bot will also follow strict rules which are created by its owner. Your input still matters more than anything else.
How do you use DCA bots?
DCA bots are great tools for diversification. Since it is a passive instrument that does not require constant overseeing, you can focus on other investment activities. Bots should never be used as the sole focus of your portfolio. While such approaches may work, you need to diversify to stay profitable in the long run. Even the best strategies tend to fail over a long enough timeframe.
When choosing the best DCA strategy for Bitcoin or any other cryptocurrency, one must remember that the crypto industry as a whole is quite volatile. It means that even the best strategies can be profitable and stop generating profits during bearish markets. It is a wise move to not risk all your money by piling all your hopes and dreams on a single DCA bot.
Implement DCA bots carefully and dedicate up to 30% of your portfolio. Make order sizes small and consider commissions that may be collected by your exchange. The core goal of using consistent trading strategies is to make money in smaller portions over a long period. You can set up other bots to use risker approaches.
Here are several good rules to follow when utilizing DCA bots in your trading system:
- Do not run too many bots on the same account.
- Try to not tinker with multipliers unless you have a good plan.
- Do not be greedy with taking profits and setting them at 10% — 15% of your order.
- Ensure that stop-loss orders are protecting your total portfolio. Set them at 10% — 15% of your order too.
- Allow your bot to use only a fraction of your total portfolio. Give it 20% — 30% of it.
- Make sure that take profits cover commissions and then some.
Make sure to follow our tips when creating a DCA bot and you will see good results shortly. However, do not think that using a DCA bot strategy is your answer to every problem. They can be profitable, but do not guarantee returns on your investments.
Even the best DCA bots may trip once or twice. It is also important to remember that DCA is a strategy that should be utilized as something complimentary to your overall system. Consider it a diversification method that allows you to generate profits when market conditions are favorable while you are making moves in other markets and sectors of the crypto industry.
When it comes to incorporating a crypto trading bot into your overall investment plan, it is wise to contemplate its place in your portfolio. Contemporary DCA bots can be extremely efficient under certain circumstances, but they should only use up to 20% — 30% of your portfolio at maximum.