What is a DCA trading bot?
DCA stands for “Dollar Cost Average” or “Distributed Cost Average” depending on which source you use. The former is a term first introduced by Benjamin Graham in 1949. The famous economist suggested the idea that purchasing commodities and stocks in small bulks over set periods is the best approach to accumulating resources, at least statistically.
This approach was used by various investors throughout the years, but it gained immense popularity in the larger community of retail traders with the arrival of cryptocurrencies. DCA buying is a method employed by the vast majority of Bitcoin enthusiasts who buy small fractions of Bitcoin with each paycheck. Since they usually dedicate a certain portion of their income to the strategy, they naturally use set periods like two weeks or a month.
Indeed, this method usually reduces the average cost of investment when it comes to stocks, but some critics pointed out that it is less advantageous for crypto. Bitcoin is notoriously volatile. Stocks often gain value over time while having small retracements. This trend is reliable since it was notable across a long history of stock exchange trading.
Cryptocurrencies are simply too young to produce sufficient data for analysis. Over the last decade, Bitcoin gained thousands of percentile points in value and lost more than half in just a couple of months. We simply cannot precisely estimate its future price and potential. On top of that, Bitcoin does not represent anything materialistic. There is no capital investment in real estate, equipment, products, or anything else for that matter.
All of the above does not mean that the DCA approach cannot work for crypto. Quite the opposite: DCA as a method can be used to generate profits reliably or slowly amass a strong portfolio.
How to use a crypto DCA bot
The most common approach is to use DCA buying as a method of slowly growing your portfolio and holding coins until they appreciate. However, bots can use the idea of buying small fixed amounts of Bitcoin or any other coin alongside a downtrend in a series of purchases.
A DCA bot works like this:
- It waits for a signal from TradingView or other analytical platforms.
- A signal indicates that a downtrend is forming and can last for a sufficient period.
- Bots start placing orders with “take profits” for each market position.
- Bots automatically exist in market positions when the price reaches a certain threshold.
As you see, a DCA bot still needs important inputs from users and analytical platforms. However, it automates all other operations like placing orders, setting up “take profit”, and exiting market positions. You will not only save time but also act faster than human traders who do not use automation.
The right kind of automation vendor
It is crucially important to choose a good provider of automation services. Contemporary platforms usually offer high-quality products, 99.9999% uptime, and many other perks. However, they are still wildly different and focus on very specific services. When it comes to DCA bots, you need a company that specializes in customizable robots and DCA presets.
There are several general qualities that you need to look for in any automation vendor:
- Intuitive interface. Many users feel intimidated by confusing dashboards with an overabundance of buttons, links, and graphs. You need to be able to navigate the service on your own and find the necessary features without any struggles. A good interface will help you build custom bots that will work according to your preferences.
- Service stability. Testing a platform before committing to a paid plan is a must. You need to be sure that the company that provides automation services is reliable and works around the clock. Every service advertises itself as a 99.9999% uptime platform, but many may have service interruptions and other issues. Test before paying.
- Affordability. Contemporary automation vendors do not have to rip off their customers. Industry leaders offer some of their products for free as a sample. For example, WunderTrading has a special plan for registered users allowing them to run up to five bots simultaneously without paying a dime. It is a great opportunity to test the product or even have an automated trading system for free.
- Diverse products. To build the best DCA bot strategy, you need to have access to a variety of features. Preset solutions, fully customizable bots, advanced systems created by experts, and more should be offered so that you could make an informed decision. Companies that overfocus on niche products rarely give you the best experience.
- Integrations with other platforms. A good automation vendor will be able to connect to a variety of centralized crypto exchanges, various analytical platforms, and other third-party tools. You should have everything you need to run a DCA Binance bot or a bot for KuCoin’s spot market.
You may be surprised, but many companies in the crypto industry have these qualities and offer an excellent service. Some are better than others, but it comes down to personal preferences and specific requirements of users.
3Commas — a good provider of bots
When it comes to automated crypto trading and copy trading, 3Commas looks like a great choice. This platform offers a wide range of products including preset solutions, custom bots, and more. However, the main focus of the platform is on social trading and copy trading. These are good products, but the automation part can seem lacking to some users.
The company also has an oversimplified user interface that can be lacking in functionality. If you are willing to overlook these issues, it is a great choice for newcomers. However, the free trial is just for three days. The free plan does not offer any automation or copy trading functionality which is a huge downside.
Pricing is also quite steep and offers a comparatively limited package of features for the price.
Advantages of 3Commas:
- Strong focus on copy and social trading.
- A simplified user-friendly interface.
- A good customer support service and an affiliate program.
Cryptohopper — bots and bots only
While Cryptohopper has some products that are not directly connected to trading scripts, it is still primarily focused on bots. If you are interested in the best DCA bots only, it can be a good choice. However, you won’t have access to other important features that can help you offset risks associated with using low-yield strategies like DCA.
Many retail traders and conservative investors also bet on experienced managers and use copy trading products to get a chance of generating huge profits together with established retail traders who already achieved success. It is a good way to have a shot at making a big profit that you can run alongside your DCA strategy.
Advantages of Cryptohopper:
- A variety of preset solutions including editable DCA bots.
- Flexible paid plans that offer a wide range of features.
- Lackluster social trading functionality.
WunderTrading — an all-around good choice
This platform has an impressive product lineup diverse enough to offer a wide range of investment opportunities for newcomers and veterans of the industry. The main focus of the service is on delivering a satisfying customer experience to users regardless of which part of the platform they want to explore.
For example, WunderTrading has the best DCA bot settings because you can adjust every single aspect of the bot including what kind of signals they will use (user signals or generated by TradingView), how to place “take profit” and “stop loss” orders, and other minute details. At the same time, you can engage in copy trading, build custom scripts, and enable a variety of presets including default DCA, GRID, and arbitrage bots.
The copy trading section has a special marketplace where you can browse an expansive catalog of expert managers working on various CEX platforms. Using WunderTrading is a good way to build a balanced portfolio around automation products. You can also run a free DCA bot using the free plan that allows all registered users to launch up to five bots simultaneously. The free plan does not have any time limits.
Advantages of WunderTrading:
- Exceptionally diverse preset bots (DCA, GRID, arbitrage, and more).
- The free plan allows you to run up to five bots without paying.
- Can be integrated with other platforms like TradingView and exchanges.
- Has a special marketplace for copy trading.
Should you run a crypto DCA bot?
Distributed cost average is a good approach if you are interested in creating a source of passive income. It is usually used to either benefit from market volatility across a period longer than the set intervals you use to place market orders. For example, if you make purchases hourly, you can expect to make a profit within a single day. If you place orders daily, you should expect to reap rewards by the end of the week.
DCA bots exploit the phenomenon of a price retracement. It is a period when the market tries to counter the last price action movement and “correct” itself. A sudden bullish rush can push the price above what the market on average is ready to pay. The price will be corrected until a new temporary equilibrium is reached.
Usually, short downtrends are followed by longer upward trends and vice versa. DCA bots make purchases when the price is going down and set “take profit” at a level higher than before to exit the market with a profit. It is a time-tested approach that works well if you can find a good technical analysis strategy that reliably predicts upcoming downtrends.
DCA is a solid system that usually generates small profits with an impressive level of consistency. It can be used to offset risk investments like copy trading, aggressive scalping, and manual trading. People who have a solid portfolio should use DCA for diversification purposes. Newcomers can use it to protect themselves from excessive risks that occur in other crypto investments.
If you are looking for the best DCA bots, you should focus on working with a provider that allows you to diversify without leaving the platform at all. It is a good idea to engage in copy trading, DCA, arbitrage, and other forms of automation on a single website instead of spreading your portfolio thin.
The main takeaway
The best DCA bot for 2024 is certainly the one offered by WunderTrading simply because you can fine-tune it according to your preferences while running it alongside other automation products such as copy trading and arbitrage. It is possible to build a complete automated trading system on this platform without ever leaving it!