Irrespective of the market condition, novices and even experienced crypto traders find it hard to identify when exactly is the right time to enter the market. Let alone technical traders; crypto-investors find it really confusing to master the timings of their investment in such volatile environments.
There is a high risk of losing money in a matter of minutes when you enter the market right before a massive downtrend or exit just before buyers start to take over the market.
So how to solve this conundrum? The best way is to follow the good old way of disciplined investing — Dollar Cost Average (DCA).
It is time to explore the DCA KuCoin trading bot, its functionalities, and the step-by-step process to get started with it. If you are a novice crypto trader or investor, check out this guide till the end. Let's get started!
Part 1 - What is KuCoin DCA Trading Bot?
1.What Is Dollar-Cost Averaging?
DCA (Dollar-Cost Averaging) is one of the simplest trading strategies. According to the data, 90% of traders will get better returns if they use DCA instead of manually investing their funds.
DCA Method Explained
DCA is a strategy that allows the investor to buy the same dollar amount of investment at regular intervals. The purchases occur regularly at specified timeframes, regardless of the asset’s price at that moment.
In the DCA method, you periodically invest in cryptos with a fixed amount instead of trying to time the market accurately. In the DCA investing strategy, the importance is given to the amount of time spent in the market over forecasting and timing the market.
The DCA strategy is a heavily tested investment method that works beautifully for all markets irrespective of their conditions. By investing in regular intervals irrespective of the asset's price, you will be buying the asset at its average price at the end of the investment period.
Two prime advantages of this strategy are that it eliminates the need to gauge the accurate entry points and reduces the impact of price volatility on your investments.
2.Choosing Between DCA & Lump-Sum Investing
Let’s understand the functioning of DCA with a simple example. Consider the maximum amount of money you want to invest as $6000 and the token you want to invest in as KCS. If the price of 1 KCS token is $10, you will get 600 KCS in your account today. After one year, if the price of 1 KCS token is $15, your investment would amount to $9000.
Now, let's say you chose to DCA your investment over buying KCS all at once. Your total investment would still be $6000, but you want to invest $1000 in KCS tokens once every two months. Let's look at the table below.
DCA Method Explained
In the above table, we see investing in KCS over six different intervals with $1000 per investment. At the end of the year, you will be left with 694 KCS tokens, and with the price of $15 per KCS, your total investment would have amounted to $10,410. This is $1,410 more than what your capital would have been if you hadn't DCA.
Also, by doing DCA, you don't really have to worry when the price of KCS goes above or below $10, the price at which you initially invested.
Who is DCA for? If you are a crypto novice investor and have no technical expertise, DCA is for you. More importantly, if you are looking for long-term investments, DCA works the best for you. By using this strategy, your emotions won't really affect you, and there are fewer chances of you getting greedy and making a wrong investment decision.
However, sticking to the rules of the game is crucial. Investing your hard-earned $1000 in an absolute bear market can get really hard. To solve this problem, you can automate your DCA strategy for free using the KuCoin DCA trading bot.
3.Who Best Fits the DCA Bot?
DCA will be perfect for you if you fit these profiles:
1) Long-term Holder
You are someone who wishes to build a long-term crypto portfolio and has a multi-year investing time horizon. By utilizing DCA, you can effectively lower your average cost over a prolonged period of time with regular buys. This gradually builds up your position to your desired exposure level while preventing the risk of over-leveraging.
2) Low-risk Tolerance Investor
You are someone who prefers investing in assets with lower volatility. While it’s a fact that cryptocurrency prices tend to fluctuate wildly, this doesn’t mean investors with a low-risk tolerance should stay out of the crypto markets entirely. If you’re someone who’s bullish for the future of crypto, you can systematically buy in with the DCA strategy. This ultimately minimizes market timing risks and makes the idea of investing in crypto less daunting to investors with low-risk tolerance.
3) Beginner Investors
You are someone who’s new to the crypto market and are looking for ways to invest. For newcomers, investing can certainly seem intimidating as the question of what to invest in and how to invest regularly pop up. Fortunately, DCA provides the perfect opportunity for beginner investors to enter the market as it skips aspects like Technical Analysis. Rather, it allows you to dive straight into investing by allocating a portion of your funds to buying in without trying to time the market.
4.Know This Before You Dollar Cost Average Your Investments
DCA strategy is not only for investors with heavy pockets. Following this method, you can make small investments in your favorite cryptocurrency regularly.
This method of investing works the best in consolidating or bearish market conditions. It is advisable not to dollar cost average your investments when your preferred asset is in a strong uptrend. If you fail to do this, you will end up buying the asset at an over-valued price which is always a bad idea.
DCA also involves making many transactions in often intervals instead of a single transaction in lump sum investment. More transactions mean more the fee you pay to your exchange. Therefore, keep an eye on your fees and regularly check if it makes sense regarding your investment. Having that said, the transaction fees could easily get offset as your investment value increases during the course of your DCA.
One downside of DCA could be you miss out on large gains when the market is heavily bullish. But as you know, catching these trends requires a ton of time and technical knowledge.
All in all, DCA is the safest way to enter the market, and with less risk, the profits will be less too.
5.The KuCoin DCA Trading Bot
So you are impressed with the DCA strategy and want to get started immediately? You can make use of the KuCoin DCA trading bot. As of today, close to 377,000 bots are running on the KuCoin exchange, and the overall returns are impressive too. What's more? You can pick from hundreds of altcoins, invest your preferred amount, choose your maximum investment according to your risk appetite and forget about it.
The bot does all the work while you get to monitor your portfolio closely and make unlimited adjustments based on your findings. You can access the bot for free; the only cost involved in this entire process is the transaction fee, which will be charged even if you do it all by yourself.
The below illustration shows how the DCA bot is different from the other bots offered by KuCoin.
DCA Bot Comparison
Part 2 - How To Create Your First DCA Bot?
1.Creating Your First DCA Bot On KuCoin
KuCoin trading bots can be accessed via the official mobile application (Android or IoS) and the web.
The first step would be to visit the KuCoin website or app and select the DCA trading bot.
KuCoin Trading Bot Page | DCA
You will be redirected to the below screen. As you can see, close to 377k DCA bots are being run on the KuCoin exchange.
We recommend watching the video there to get a general idea of the DCA bot with a few important fundamentals to remember.
Scrolling down would lead you to the list of top profit-earning DCA bots on KuCoin. Click "Create” to get started.
DCA Bot Creation Process
As the DCA bot is pretty simple to use, the only parameters you would be able to change are the amount of cryptocurrency you would like to use per investment, the total investment amount, as well as the interval of investing, and the date of first investment.
Here, we chose to invest 20 USDT per investment and capped the maximum investment to 70 USDT. We also choose to invest every day with the first investment as now. That means the bot gets created as soon as we hit Create and debits your trading account by 20 USDT. The same happens every day at the same time until the bot reaches its maximum investment cap. So essentially, after buying 20 USDT thrice.
Note that entering "maximum investment" is optional, and you can choose not to cap your investments with the KuCoin DCA bot.
DCA Bot Order Confirmation
More advanced users can also consider optimizing the profit target. Here, we have set out profit target at 10%. You can see the estimated time to reach your profit target based on your customized price parameters. What does the bot do once you reach your profit target? You have two options to pick from — to notify and continue the DCA or to notify and sell all your positions. Pick your preferred option and click Confirm.
Setting Profit target
The app will then prompt you with an order confirmation, and once confirmed, the bot will officially start running.
As always, your funds need to be in your Trading Account before transferring them to your bot. You can make internal transfers (main account to the trading account, for example) for free by clicking the swap button at the bottom.
You can click on the Running tab at the bottom of the screen in order to check how your bot is doing in terms of investment and profits.
Running Bot Overview
2.Making Adjustments To Your DCA Bot
After analyzing your DCA bot’s performance, you can edit the parameters by clicking the Edit icon at the bottom right. Any changes you make there get reflected immediately after clicking the confirm button.
Editing The Parameters On KuCoin DCA Bot
3.Exiting The DCA Bot
If you wish to close the bot, go to the Running Bots section and click the Switch icon on the top right. As shown in the image above, you can see the available funds that will be transferred to your trading account. You can choose between receiving KCS (the token you chose to dollar cost average) or USDT to your trading account.
Quitting Your DCA Bot
Part 3 - Key To Maximizing Your DCA Bot Profits
1.When is DCA more effective than lump-sum investing?
DCA can help an investor safely enter a market, start benefiting from long-term price appreciation, and average out the risk of downward price movements in the short-term. And in situations like the ones below, it may offer more predictable returns than investing a lot of cash at once:
- Buying an asset that may increase in value over time. If an investor thinks prices are about to go down — but are likely to recover in the long term — they can use DCA to invest cash over the period of time they think a downward movement will happen. If they’re right, they’ll benefit from picking up assets at a lower price. But even if they’re wrong, they’ll have investments in the market as the price increases.
- Hedging bets through volatility. DCA exposes investors to prices across time. When a market experiences price volatility, the goal of this strategy is to average out any dramatic increases or decreases in their portfolio and to benefit a little bit from price movement in every direction.
- Avoiding FOMO and emotional trading. DCA is a rule-based approach to investing. Often, beginner traders fall into the trap of “emotional trading”, where buying and selling decisions are dictated by psychological factors like fear or excitement. These can lead investors to manage their portfolios ineffectively.
2.How Often Will The DCA Bot Invest?
The high volatility of cryptocurrencies means you can use the DCA Bot more often, with daily, weekly automated investing being appropriate.
So what are you waiting for? Download the KuCoin app, create a DCA bot, and be a part of 377,000 KuCoin DCA bot users worldwide.
We hope you found this guide helpful and informative.