Setting up a DCA bot – main benefits and a step-by-step guide

As the crypto space rises in popularity so does the use of crypto trading bots. 

Investors use trading bots for various reasons, mainly because it allows them to automate the trading process and passively trade 24/7 if desired. 

It provides a sense of risk mitigation by relying on cutting-edge technology that trades based on data, not emotions, increasing your chances of avoiding the urge to overtrade (and make costly mistakes) in volatile markets.

The crypto bot’s efficiency depends on the specific strategy, trade conditions, and indicators selected to build your bot.

Some bots help investors reduce the effect of volatility more than others. The bot known for this kind of tried and tested performance is the Dollar-Cost-Averaging Bot, also known as DCA.

Before learning how to set up a Dollar-Cost-Averaging Bot, understanding what a DCA bot is and why savvy investors flock to this strategy will be beneficial.  

Introducing the DCA Bot

A Dollar-Cost-Averaging Bot is a trading bot used by investors to buy and sell crypto assets periodically over predetermined prices. Ideally, you would set your bot to enter long positions while the price of the said asset declines and exit those positions on an upswing.

The further price falls, the more buys are triggered. If the price should slide below the last buy level set, your positions will be held and independently sold once each lot is in the green.

The selling level is referred to as the take-profit level (TP). Every time a buy order is placed, the take-profit price is updated to ensure that it is equal to the TP parameter you specified.

Benefits of DCA Bots

There are different benefits to using DCA bots. However, the performance would depend mainly on the specific strategy and conditions powering it. 

Generally, here are some benefits of using a DCA bot:

  • It’s ideal for both holders and momentum traders.
  • The DCA approach allows investors to lower the risk of trading in volatile markets. 
  • DCA can help you either average down on losses or boost earnings, depending on the state of the market. 
  • DCA works to keep you from making large trades that may keep you stuck in a position. 
  • DCA trading is a less emotional strategy than going all-in at one price where every price movement is alarming for the trader.

For accumulators confident in an asset’s long-term potential and simply searching for a convenient way to hold it, dollar cost averaging is something to consider.

How does a DCA bot work?

First Order (purchase order) is placed by the trading bot as a limit order.

After the first order is filled, the bot places a take-profit order and an additional order based on the price execution of the first order.

Then, it places a new TP order (sell order for long strategies and purchase order for short strategy) with the recalculated price for both orders.

Additionally, it places a second extra order at a discount of two steps (defined Step of Extra Order). The cycle is repeated when the second Extra Order is complete. 

There can be only one buy order and one sell order active at once. 

Getting Started

The process of setting up a DCA bot is very straightforward.

  • Create an account

The first step is to create an account on the platform you’ve chosen to deploy the bot.

With most platforms, you’ll only need to provide your name, email, and password to start.

Then, you will need to verify your account by checking the email address you provided for verification or the welcome email.

  • Connect Your Exchange

Once you have created an account on the platform, the next step is to create a bot. 

The bot communicates with your portfolio (or wallet) through an API key. You will have to generate a new API key specifically for the platform manually.

This is a very straightforward process and can be done within a few clicks by logging into your exchange, like Binance, going to settings, and looking for “API Settings”.
From here, you will be prompted to provide a name for the API connection and set specific permissions.

The main options that should be selected are “Enable Reading,” “Enabling Spot & Margin Trading,” and “Enable Futures,” along with “Unrestricted” under IP access restrictions. 

Under no circumstances should you ever have “Enable Withdrawals” selected – and you should be wary of any service provider recommending you have that active. 

Once you click “Create API” you will receive two codes to paste into your “API Key” and “API Secret” boxes back on the screen. 

  • Settings

Once you have successfully created the trading account, you can start setting your preferences. Some of the requirements will be to:

  • Set your bot’s name, symbol, exchange, trade amount, direction, and leverage for futures exchanges under the general section.
  • Set your entrance strategy, including the quantity, cost, and size of your orders.
  • Set your take-profit order to obtain your profits.
  • Set a stop-loss order and other stop settings to reduce your risk.
  • Advanced: specify the number of trades the bot should do before stopping.

The available assets and capital for your bot to trade with are displayed on the right side of the screen under “Available Balance” (or something of that sort) along with a dynamic summary of the bot’s commands that update as you make changes to the bot’s design.

  • Activate Your Bot

The system will usually notify you of invalid inputs or missing commands and what has to be modified for the bot to deploy correctly. 

When you’ve accurately configured your bot, you can start building it by selecting the “Create Bot” option, easily located on the screen. 

Usually, you’ll be given the option to choose either “Create” or “Create & Activate” when building the bot.

The “Create & Activate” command will build and deploy the bot. As soon as the bot is live, it will begin trading immediately.

Trades won’t be opened until the bot is activated, and clicking just the “Create” option will only build the bot where you will have to activate it afterward manually.

You Never Know Until You Try…

DCA bots automate and integrate technical analysis commands to buy and sell cryptocurrencies at the optimal time using one of the most effective strategies known in the industry.

Whether one is an avid day trader or perhaps a periodic accumulator who has a 9-5 job, a family, and other priorities to tend to in life, the DCA bot is a perfect accommodation for all traders.

Since you can, and many do, have multiple bots going at a time, incorporating the DCA bot into your strategy may be the missing piece to your wealth-building mission.


Interesting Related Article: “Will we be able to create ethical robots?