Good day guys. The topic of today’s video is Averaging in cryptocurrency deals and Safety Orders in bots. Neither traders nor robots are able to predict price movements, so it is necessary to insure against such cases and use additional techniques. One such technique is DCA. More details going right now!
What is DCA and Add Funds in Crypto
Since even professional traders make mistakes, some trading strategies use the DCA (Dollar Cost Averaging) technique. Its meaning is that when the price of coins falls, you can buy more tokens at a cheaper price, gradually moving the entry point in the deal closer to Take Profit. Thus, we Averaged our position and increase the chances of a quick price close with Take Profit.
After all, the price cannot fall indefinitely. Temporary rollbacks and price increases occur, so it is important to catch this upward price movement after several additional buying of coins. If you bought coins only once, and the price fell by 10%, it is not a fact that it will grow by 10% and plus your take profit some other percentage. But it is quite possible to grow up back after falling by 1, 3, and 7%. For this, in fact, averaging is used.
DCA is used by some other investors to buy cryptocurrency regardless of its value. After all, the price is not only rising, but also falling. For example, a trader has a deposit of 10,000 USDT. For 10 months, he buys a coin on the same day, once a month. Thus, the trader Averages his entry price and gets the average value of the cryptocurrency. Find more information in the video “How to buy expensive Bitcoin or another cryptocurrency”.
Bots also have Averaging and the ability to Add Funds in cases of a drop in the value of a token. You can Add Funds either manually by clicking on the corresponding button opposite the bot in the “Deals” section, or by set up the number of automatic Averaging in the settings. Automatic Averaging in bots is called “Safety Orders” (SO), that is, opening additional buy orders if the price falls below a specified percentage.
For example, in Smart Trade, create a deal to buy 100 SXP at a price of 100 USDT (1 SXP = 1 USDT), Take Profit 3%. But the price turned around and fell to 0.8 USDT per 1 SXP. If you have not placed Stop Loss, you will have to wait for the price to return back and not the fact that it will return soon. All that remains is Averaging, so to close the deal faster, we buy another SXP for 100 USDT by using a useful function in Smart Trade – “Add Funds”. The price falls again. We buy SXP for the second time for 100 USDT, moving the entry price closer to the current one.
Safety Orders in cryptocurrency
The price falls further and we continue to buy 100 USDT as before several more times. Of course, the free balance on the deposit is important in order to Average the entry price. Sooner or later, the price will reverse and go up. Let’s say the price dropped to 0.5 USDT for SXP, we bought again, and our exit point from the deal with Take Profit, if at first, it was 10.3 USDT (10 USDT + 3%), now it is 0.515 USDT (0.5 USDT + 3%). The price reached 0.6 USDT per coin and once again began to fall, but our deal was closed with Take Profit!
Such as buying SXP is analogous to the Safety Orders in bots. Only in Smart Trade you manually specify when to Add Funds, and the bot does it for you automatically! At the same time, in the robot’s settings, you can specify how much money to buy a coin and how many “Safety Orders” to keep open at the same time. There is also a SO multiplier, which multiplies each SO by a given number in order to close the deal faster.
And the last setting is the percentage of placing between the “Safety Orders”, that is, to set after what interval of the price fall in% to buy more coins, whether it is every 1% fall, 5% and so on. However, please note that the use of SO carries its own risks as your deposit is being used. The more you buy coins, the more you need to influence the entry price next time. You cannot Average a 10,000 USDT position by Add Funds just only 100 USDT.
By “Adding Funds” in Smart Trade or SO in bots, you increase both profit and risk. And the potential loss here is possible in two cases. 1) If the price continues to fall without recoil and after that, it will not almost grow anymore. This often happens with shitcoins or dubious tokens. Therefore, it is best to always trade only the Top 30 cryptocurrencies.
2) You no longer have money to buy, and the price has dropped so much that its upward movement will not help close the position. In this case, you should only be careful not to use the largest part of the deposit in the first and subsequent Safety Orders. Calculate your deposit for Averaging in such a way that it will be enough for at least a 50% price drop. In Smart Trade 3commas and bots, when creating a bot, the system will calculate how much money is required.
Averaging or Stop Loss in crypto?
It is possible to increase your chances by relying on news and technical analysis, indicators, signals, or even on your own feelings, but this does not give 100% confidence in a successful transaction. For this reason, when creating trades, it is better to insure with Averaging or Stop Loss. But which is the best to use? It all depends on your trading strategy. I want to say right away that the main point of using bots is DCA, not Stop Loss. However, Stop Loss in bots can also be used if desired, but not in one time together with Averaging.
I prefer to use Averaging in the Spot market. This style of trading is easier, and in my case, it gives you more money than using Stop Loss. Because you need to know how to use Stop Loss, and most traders are exited from the market because their Stop Loss is often triggered. For this reason, many traders do not even like Stop Loss at all and try to avoid them. But you need to insure yourself with something, and Averaging will help you with this.
The DCA technique allows me to stay in the market longer and smooths out bad trade entries. If I am mistaken, I will buy coins again. Has the price dropped? I buy again or let the bot do it automatically instead of me. Of course, I only select the top 30 coins, assess volatility and liquidity, study technical analysis, and find the optimal entry points to be as safe as possible. And I always keep most of the deposit for Averaging.
I definitely use Stop Loss in the Futures market. It is extremely dangerous to Averaging in the futures market. I think it is optimal to use leverage x3 to x5, set Stop Loss 3% so that it works much earlier than liquidation, but this requires finding successful entry points. Otherwise, the market will often hit your Stop Loss. But since we use the leverage from x3-x5 and trade more money than we have, this drawback is smoothed out.
If the leveraged profit is 2 times higher than the stop loss, I will always make more profit. And in conclusion, I want to say that using the DCA technique and even more so with SO in bots is possible only through a special service, for example, 3commas. There is no such possibility on exchanges. Of course, you can try to buy coins yourself and count, but this is extremely inconvenient, confusing, and a waste of time.
The video about Cryptocurrency Position Averaging (DCA) and Safety Orders are coming to the end. This topic is one of the most important and constituent strategies of many traders. I myself often use this strategy in manual trading through Smart Trade or 3commas cryptocurrency bots, where all Add Funds for buying more coins are calculated automatically, and as a result, you see the final profit. This concludes the video and until the new releases on botcryptotrade.com