DCA (Dollar-Cost Averaging) is effective in SPOT trading, there is no fixed formula for how much percentage to buy at what price drop. It depends on many factors such as:
* Risk appetite: Are you cautious or willing to take on higher risks?
* Investment goal: Long-term, medium-term, or short-term investment?
* Confidence in the asset you choose: How much do you trust its growth potential?
* Capital you have: How much capital do you have to implement DCA and how many times do you want to split it into purchases?
* Price volatility of the asset: Does that asset usually have a large or small price fluctuation range?
However, based on the experience of many investors, you can refer to some effective DCA approaches as follows:
1. Divide evenly over time:
* Principle: Buy a fixed amount of assets at regular intervals (for example: weekly, monthly), regardless of price.
* Advantage: Simple, easy to implement, no need to guess the market.
* Disadvantage: May buy at high prices if the market continues to rise.
2. Divide based on percentage drops:
* Principle: Determine certain price drop thresholds to buy more. For example: buy more when the price drops 5%, 10%, 15% compared to the previous purchase or compared to the nearest peak price.
* Advantage: Buy more when the price drops significantly, helping to reduce the average cost more effectively.
* Disadvantage: Need to monitor prices more frequently, may miss opportunities if prices do not drop to the desired threshold.
Some suggestions for DCA ratios based on percentage drops (for reference only):
* Drop level 5-10%: Buy a small amount (for example: 10-20% of the planned capital for this DCA).
* Drop level 10-20%: Buy an average amount (for example: 20-30% of the capital).
* Drop level above 20%: Consider buying a larger amount (for example: 30-50% of the capital), depending on your confidence in the asset.
Specific example:
Assuming you have 1000 USDT to DCA into BTC and you decide to split it into 5 purchases. You can apply the DCA strategy based on price drops as follows:
* Time 1: Buy 200 USDT BTC at the current price.
* Time 2: If the BTC price drops 8% compared to the price at the first purchase, you buy an additional 200 USDT BTC.
* Time 3: If the BTC price drops another 12% compared to the price at the first purchase, you buy an additional 200 USDT BTC.
* Time 4: If the BTC price drops another 18% compared to the price at the first purchase, you buy an additional 200 USDT BTC.
* Time 5: If the BTC price drops another 25% compared to the price at the first purchase, you buy the remaining 200 USDT BTC.
Important note:
* Determine the number of DCA times: Decide how many times you want to split your capital into purchases. This depends on the total capital and the level of volatility you predict.
* Reasonable price drop thresholds: Set appropriate price drop thresholds that align with the normal fluctuation range of the asset you choose. If the threshold is too close, you may buy too many times in a small price drop. If the threshold is too far, you may miss the opportunity to buy at a good price.
* Maintain discipline: Adhere to the established DCA plan, avoid buying based on emotions (fomo when prices rise or fear when prices fall).
* Do not DCA "catching the bottom": DCA is a strategy of averaging purchase prices during a decline, not trying to guess the market bottom.
* Consider contingency capital: Always keep a portion of capital in reserve to respond to unexpected situations or special opportunities.
In summary, there is no rigid DCA rule. What is important is that you need to build a strategy that suits yourself, based on the factors mentioned above, and persist in implementing it. Wish you successful investing!
