Topic: Dollar Cost Averaging Question (Read 396 times)

not addressing o_e_L_e_o, just using his comment as reference and addressing the other readers

DCA (dollar cost average aka constant dollar plan) is meant to be if you want to invest say $52k a year. instead of saving up $52k and then making one purchase at year end. you would under DCA save up $1k a week and just buy as soon as you deposit.
where by the 52nd week you should have a average of the years price. and not missed any opportunity during the year waiting to save up a lump sum.

but if you are like O_E_L_E_O who is worried about a $2.99 charge on $200 (1.5%) but not so concerned about the 5% swings of market volatility in a weeks period. then its not really 'reducing risk'

far better to deposit your weekly/monthly amount. and then look at the chart to see if when depositing if the price is at a weekly high or low. and buy if its at a low. or wait a few hours, days to buy the microdips that happen daily/weekly.

having a 'just throw the whole $1k at whatever price it is as soon as your deposit arrives". can cost you more then 1.5%, rather then waiting a few hours or days that week to take a better price.

very worse case you just buy before the end of week. still fulfilling your "just throw $1k at whatever price" mindset. and try again next week. to do better then "whatever price" mindset.

after all if your willing to buy at "whatever the price is" for the week. your not losing anything by still having that mindset if there was no dips during the week. but most of the times.. there are, so might as well try maximising the average by buying the dips

also. if an exchange does have a $200 order with $2.99 fee, but a $201 has a 0.5% fee($1) might aswell pay an extra 1cent on the order and save $1.99 on the fee.. you know common sense

And if the price starts to dump for the next 7 days, then the reverse is true and OP would have ended up with more bitcoin if he bought all in on the seventh day than if he bought in daily.

As I said above, the more frequent your buys then the closer you will come to buying in at the average value of bitcoin during the period of time in which you are buying. Whether this works out as more or less profitable than buying less frequently depends entirely on what the market does during that time. But again, the whole point of DCA is not to maximize profit, but to minimize risk, and the closer you come to buying at the average price then the smaller your risk becomes.

That's great question s.r
I will suggest you when Whole Market has dumping on that moment you will partial investment in the part wise. In starting go with 200$ in bitcoin and any others alts. After that waiting for some more dump If do so some again investment 10% amount. If you have make strategy to invest in weekly and monthly basis investment you will be best. And other way you have to focus support and resistance when market has correction you have best time to invest amount 5 % to10% in every correction . Long term prospects you will have make big amount

Still, this is not a perfect way to save the fee while the dollar cost average. For example, let us suppose bitcoin prices start to pump for the next 7 days, so if OP buys daily he will get more satoshi's as compared to if he bought all in on the seventh day when prices are high. In this case, the saving fee may not be that important.

Depends entirely on where you are buying. Last I checked, Coinbase for example (not Coinbase Pro) charges a flat fee of $2.99 for a trade of $200, but a 0.5% fee for trades above $200. So 7x $200 trades would cost $20.93 in fees, whereas 1x $1400 trade would only cost $7.00 in fees. Gemini have a similar structure with flat fees for small trades and percentage fees for larger trade, which again works out better if you make a single larger trade rather than multiple small ones.

Well, If am buying bitcoin today from a centralized exchange, I rather buy the whole $1400 and withdraw to my private wallet for a safe keep. However If I were to dollar cost averaging (DCA), by buying in part, say $200 or more every week till I am done buying, and I need to be withdrawing to my private wallet, I will have to be withdrawing the bitcoin via other protocol otherwise known as off-chain. For example, I can buy bitcoin on binance and withdrew via Bep20 for a safe keep, likewise I can buy a wrapped bitcoin in TRC20 network in a bid to reduce fees.

inner-exchange "fee's" are % based not fixed amount.

1x $4k at 0.5% fee = $20
10x $400 at 0.5% fee = $2, $2, $2, $2, $2, $2, $2, $2, $2, $2 = $20
100x $40 at 0.5% fee = 20c, 20c, 20c, 20c, 20c, 20c, 20c......  = $20
1000x $4 at 0.5% fee = 2c, 2c, 2c, 2c, 2c, 2c, 2c, 2c, 2c .......  = $20

so no extra cost.
the then benefit is that you can be more timely about purchases to get the dips. so you save more then 0.5% by buying at better timings

what does cost though is if your BANK charges per wire transfer. which can hurt if you do daily/weekly deposits instead of monthly.
same goes for btc withdrawals. if your taking out hourly btc instead of weekly, monthly btc that can be 900 blockchain transaction fees instead of just 1 or 4 withdrawals.

so best advice wire transfer into exchange once a month and remove BTC once a week/month.
then during that month, trade as you please hourly or daily.

Buying it during the dip sounds more likely and better. Doing it on a daily basis, what if it's not ideal to buy because you consider it high? Well, the thing here is that you're likely having a lot of resources. If I'm in your position, I would do DCA but not have that definite time when I'll do it.
Maybe every dip that I consider, I'll buy half, and then if there's another dip, I'll just do a follow-up and buy again. Sort of like that which is convenient to me.

It won't be feasible for you to buy bitcoin every day. Isn't?
I think you are better buying bitcoin on every week but another question is how much total amount would you invest in bitcoin?
How for many week can you buy 1400$ worth of bitcoin and how long are you willing to hold them ?

It's simply an argument that plebs like us should be more efficient with our capital. Capital is limited, why use it to buy blindly without assessing your position, and the current situation of the market? It's also better for our sanity.

If you can set up hourly trades, then why not? The likelihood is you are going to get stung for fees by making more frequent smaller trades than by making one larger trade every week. Once you get to hourly trades, you are looking at ~720 trades a month, so unless you are investing huge amounts, you are also going to start getting hit by rounding errors in both the traded amount and the fees paid (neither of which will be in your favor) from your multiple very small trades.

The least amount of effort is to just set up automatic recurring buys once you've worked out which structure gives you the best overall fee rates.

The market has gone down and so his profits have gone down. That's not an argument against DCA. Yes, if he had perfectly timed the market then he would have made much more, but conversely, if he had poorly timed the market then he would have lost a lot. The whole point of DCA is to minimize risk, not maximize gains.

I understand. I was merely telling him that DCA might not be for everyone. Capital is limited, plebs can’t simply buy anytime, and not care, especially with an asset as volatile as Bitcoin.

An illustration of an inefficient usage of capital by Michael Saylor during 2021, https://twitter.com/0xsisyphus/status/1468942871701204992

When you do talk about DCA then always look for possible bottom.It wont really be mattering whether its on a day to day basis or on weekly because if you do really tend to take advantage then you should be buying with those increments even though its hard and cant really be done so easily since no one knows or could predict on whats the bottom but nothing beats out when you do
have the awareness and knowledge on what you are doing.

Why not then hourly? If daily is more beneficial than weekly, then certainly hourly would be more beneficial than daily. What about investing every minute, or second?

Anyway, I disagree because I don't think the goal is to get closer to the average. I think it is more important to get the best return for the least amount of effort.

Both of them have pros and cons.

If you both $1400 of Bitcoin in one trade, there is a chance that you can get a huge loss if it goes down more but at the same time you can get huge profits if it goes up as well.
On the other hand if you buy $200 daily, you have a chance to buy at a lower price and gain more profit there but at the same time you can buy also at the bottom which can affect your profits as well.

TBH, this is very subjective because different people have different strategies when it comes to investing. As for me, I'm just allocating a portion of my total salary and I'm buying Bitcoin once every month regardless of the price but as much as possible I'm buying at the lowest price possible.

You are missing the point of DCA. The entire point of DCA is to not try to time to market; pick an amount and a time frame, and invest regardless of what the price is doing at the time. As soon as you try to time the market then you are no longer DCAing. If you want to do that, that's fine, but if you want to do DCA then you should see if you can set up automatic recurring buys so you don't even have to look at the market at the time of your purchases.

I would agree. Daily buying will get you closer to the overall average price of bitcoin than weekly buying will. If you assume bitcoin is going to continue on a overall upward trend, then over enough time daily will work out more profitable all other things being equal. However, as I mentioned in my first reply, the fees will not necessarily be equal and could result in significant differences.

This is correct, however, it is not the situation set out by the OP - he has $1400 per week to invest - the question is how best to allocate that weekly amount - single weekly buy or seven daily buys.  Given the daily volatility of bitcoin I argue that daily is likely to be more beneficial.   For example the high today (so far) is $47,555; yesterday the high was $50,102.

Moreover, if you expect the price to increase over time and never drop then there is almost no point in a DCA strategy, however, that isn't what we see in reality.  In reality there is an upward trend over very long periods but in the shorter term there is a high degree of volatility.  

To turn your example around, consider how much less you would have if you fully invested at the high in early November, versus DCA'ing over the following few weeks (indeed probably months).

Of course you can only know with hindsight what was the right strategy so it has to be based on probability.

Every week? How long, forever? It wouldn’t matter if you have unlimited capital. But because I believe you don’t have enough capital, always wait for a DIP, try to use your capital as efficient as possible. Don’t buy blindly like Michael Saylor did in 2021.

What you want to do can be referred to as SIP, i.e. Systematic Investment plan whose main purpose is to reduce the impact of volatility on your overall invested amount.Having said that logically the greater the number of investments the greater the DCA/SIP effect which would result in lesser impact of volatility.
Hence if you want to invest 120$ you must select 4$/day plan over 30$/week plan but due to Maker/taker fees,taxes,minimum purchase amount  and other variables people cant always optimize this strategy.

I totally agree with you in the sense that, I would consider my paycheck which is monthly here, and my budget. I believe these two variables will truly help you to make the right decision cos it will just be a monthly transaction with just smaller fees instead of many small transaction fees per month which will eventually be more than what should be required.