DCA trading bot: how to start dollar-cost averaging (DCA)

Kick start your understanding of dollar-cost averaging (DCA) by watching this video on the OKX DCA Crypto Trading Bot.

Here’s how our latest trading bot allows you to fine tune your dollar-cost averaging (DCA) strategy.

What’s dollar-cost averaging (DCA)?

Dollar-cost averaging (DCA) is a strategy traders use to buy specific assets at set intervals to split their allocation at multiple price levels. If the market moves against their initial trade, this strategy allows them to get a better entry price. They can then close their position as soon as their 'take profit' target has been reached.

What’s the difference between DCA and recurring buys?

People often use the terms “DCA” and “recurring buy” interchangeably but they’re not exactly the same thing. The main difference between DCA and recurring buys is that the first is more flexible:

• Recurring buys imply buying a fixed amount of an asset at fixed intervals (daily, weekly or monthly), regardless of market movements.

• DCA allows control of the buying price, since buying orders can be triggered when the price drops by a fixed percentage and selling orders can be triggered when the market recovers and reaches one’s take-profit target.

How the DCA bot works

Users begin the trading cycle by selecting their risk profile via a series of parameters (or choosing from conservative, moderate, and aggressive pre-set parameters).

The strategy will start with an initial order that is programmed to execute a certain number of times. If the asset price drops by a designated percentage, the bot will execute a second trade that's a multiple of the first order. This cycle is repeated until the price reaches the maximum order count, the take profit level, or the stop loss level, as defined by the user. If the take profit target is reached, then the bot will run the next trading cycle.

Traders who believe the price of an asset will increase in the future tend to use this strategy to increase the size of their position — even if it is temporarily declining in value. They use the DCA approach to buy when they think the price is low and sell when they think it’s high.

For that reason, they tend to use it during volatile (significant but short-lived movements) markets, as well as in sideways markets they think will experience short-term rebounds.

The DCA strategy is well-known to traders but our bot offers them a few features that make it truly special:

• Enhanced AI Strategy. The bot uses backtested parameters as well as characteristics of the token (e.g., historical volatility) to determine the optimal parameters for each pair (including risk profile).

• Flexible start conditions. The bot allows users either to enter their position or to select their entry time using technical indicators (such as the Relative Strength Index or “RSI”).

• Continuous trading cycles. The bot can run throughout trading cycles indefinitely, continue trading from dip-to-rebound thanks to safety orders (the bot will place orders after you have opened the position to average your buy price if the assets go in an “unfavorable” direction), and/or start new cycles after achieving the take profit target defined for each cycle. 

• High fund utilization rate. For traders who select a high volume multiplier, or those who prefer not to pre-occupy all funds that will be potentially used by the bot, our DCA bot offers them the flexibility to reserve only the minimum necessary funds (initial order + first safety order) upon creation, and transfer funds later when needed. 

What are DCA’s trading cycles?

DCA works in a continuous investment mode. A complete trading cycle must include an initial order and a take profit order.

The “take profit per cycle” order refers to the percentage of gains the trader hopes to earn for each trading cycle. A trading cycle ends when this take profit target is met. For example, if a trader sets a 10% take profit target and its average position cost is 1,000 USDT then, when the price reaches 1,100 USDT, the trading cycle will end.

Things are similar for the stop loss target. The stop loss price can be calculated this way:

Initial order average filled price * (1 – stop loss target)

Once this stop loss price is triggered, then the entire strategy will end and the bot will not automatically start a new trading cycle.

How to use the DCA Bot on OKX

1. On OKX’s navigation bar, hover over Trade and then click on Trading bot.

2. The different trading bot strategies we offer will be listed here. Select DCA Bots and then click on Spot DCA (Martingale).

3. Select AI Strategy then you will be allowed to choose between conservative, moderate, and aggressive risk profiles. You’ll then be able to enter the amount you want the bot to trade with. By clicking Create, the DCA bot will start functioning with pre-set parameters.

4. Select Manual if you want to set the parameters yourself. Enter the parameters such as the percentage of price steps, the take profit target per cycle, the initial and safety order amount, and the maximum number of safety orders.

5. If you want the bot to start entering a new trading cycle immediately upon creation or upon the completion of a previous trading cycle, select Instant. If you prefer the bot to be triggered by a given signal, you will be able to leverage technical indicators like RSI to time the entry for each DCA trading cycle.

6. Check the details on your order in the Order Confirmation window. If you want to proceed, click Confirm.

7. When you’ve deployed the DCA bot, you can review the position in the trade history section at the bottom of the Trading bot home screen.

8. Scroll down, click Bots and then click DCA. For more details on an open position, click Details next to it. It will display detailed information.

DISCLAIMER

THIS ANNOUNCEMENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO PROVIDE ANY INVESTMENT, TAX, OR LEGAL ADVICE, NOR SHOULD IT BE CONSIDERED AN OFFER TO PURCHASE OR SELL DIGITAL ASSETS. DIGITAL ASSET HOLDINGS, INCLUDING STABLECOINS, INVOLVE A HIGH DEGREE OF RISK, CAN FLUCTUATE GREATLY, AND CAN EVEN BECOME WORTHLESS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING OR HOLDING DIGITAL ASSETS IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.