07-19-2021, 09:18 AM
DCA vs Buy the Dip - an analysis
<!-- SC_OFF --><div class="md"><p>Hi all, I've read many posts recommending various strategies for buying over the past year or so, and an overwhelming number of them involve DCA (Dollar cost averaging) or "buying the dip". So I decided to look at historical data for Bitcoin over the previous 5 years (from July 18 2016 until today) to see how each strategy compared to each other.</p> <p><strong>What is DCA?</strong></p> <p>Dllar cost averaging is where you simply invest a regular amount into an asset over time using equal payments. For example $100 per week. The theory behind it is that you automatically buy when an asset is cheap, which more than makes up for the buying when the asset is expensive. </p> <p><strong>What is buying the dip?</strong></p> <p>Buying the dip involves saving your money until the market experiences a significant downturn. In crypto land, this usually involves waiting until a crash and then buying up an asset at a lower price in the hopes that it will eventually return to equilibrium.</p> <p><strong>Method</strong></p> <p>Using historical price data, I pitted a standard dollar cost averaging strategy against two 'buy the dip' strategies.</p> <p><strong>1) DCA strategy:</strong></p> <p>I 'bought' $100 worth of bitcoin per week for 5 years.</p> <p>Results:</p> <p>Total spent: <strong>$26,600</strong></p> <p>Bitcoin bought: <strong>9.0742</strong></p> <p>Total value (as of 18 July 2021): <strong>$286,907.11</strong></p> <p>% returns: <strong>+1079%</strong></p> <p><strong>2) Buy the dip at 10%</strong></p> <p>$100 saved and put in a pot each week. When the price dropped 10% below the 7 day moving average (the average price for the past 7 days) I used all the saved money to buy Bitcoin. <em>(using historical data, this could be calculated by looking at whether the 'low' price for the day was more than 10% lower than the MA for the past 7 days and then 'buying' bitcoin at a price of the MA minus 10%)</em> </p> <p>Results:</p> <p>Total spent: <strong>$26,300 (with $300 left over)</strong></p> <p>Dips bought: <strong>79</strong></p> <p>Total BTC bought: <strong>7.9769</strong></p> <p>Total value (as of 18 July 2021): <strong>$252,514.74</strong> (including leftover $)</p> <p>% returns: <strong>+949%</strong></p> <p><strong>3) Buy the dip at 20%</strong></p> <p>$100 saved and put in a pot each week. When the price dropped 20% below the 7 day moving average (the average price for the past 7 days) I used all the saved money to buy Bitcoin. </p> <p>Total spent: <strong>$26,200 (with $400 left over)</strong></p> <p>Dips bought: <strong>23</strong></p> <p>Total BTC bought: <strong>9.0340</strong></p> <p>Total value (as of 18 July 2021): <strong>$286,036.14</strong> (including leftover $)</p> <p>% returns: <strong>+1075%</strong></p> <p><strong>Conclusion:</strong></p> <p>While this is only a couple of many possible Buy The Dip strategies, so far it doesn't seem that saving up and buying after a crash offers any significan benefit over just investing regularly over a period of time, in fact returns were weaker for both dip buying strategies. One reason for this, is it's impossible to tell how big or small a dip would be, so buying will often be too early at 10% when the price drops further, or a buying opportunity missed if you wait for it to dip 20%. Nevertheless there is merit to both strategies, and I will challenge anyone on the forum to find a Buy The Dip strategy that offers significantly better returns than DCA over a long time period. </p> <p><strong>Further notes:</strong></p> <p>- I will post the link to the spreadsheet data in the comments. This post was ghosted before so no one could see it and I think the reason was the links.</p> <p>- I decided to use the 7 day moving average as it would give a reasonable price to compare the dip to, 7 days means that no matter what day in the cycle you are, your data will be 5 weekdays and 2 weekend days. Using single day data proved to be a bad idea because a 'dip' could just be a dump following a 1 day pump, we wanted an actual dip compared to an expected price. </p> <p>- Historical price data was sourced from investing dot com website.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Wargizmo"> /u/Wargizmo </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/omosy6/dca_vs_buy_the_dip_an_analysis/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/omosy6/dca_vs_buy_the_dip_an_analysis/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>Hi all, I've read many posts recommending various strategies for buying over the past year or so, and an overwhelming number of them involve DCA (Dollar cost averaging) or "buying the dip". So I decided to look at historical data for Bitcoin over the previous 5 years (from July 18 2016 until today) to see how each strategy compared to each other.</p> <p><strong>What is DCA?</strong></p> <p>Dllar cost averaging is where you simply invest a regular amount into an asset over time using equal payments. For example $100 per week. The theory behind it is that you automatically buy when an asset is cheap, which more than makes up for the buying when the asset is expensive. </p> <p><strong>What is buying the dip?</strong></p> <p>Buying the dip involves saving your money until the market experiences a significant downturn. In crypto land, this usually involves waiting until a crash and then buying up an asset at a lower price in the hopes that it will eventually return to equilibrium.</p> <p><strong>Method</strong></p> <p>Using historical price data, I pitted a standard dollar cost averaging strategy against two 'buy the dip' strategies.</p> <p><strong>1) DCA strategy:</strong></p> <p>I 'bought' $100 worth of bitcoin per week for 5 years.</p> <p>Results:</p> <p>Total spent: <strong>$26,600</strong></p> <p>Bitcoin bought: <strong>9.0742</strong></p> <p>Total value (as of 18 July 2021): <strong>$286,907.11</strong></p> <p>% returns: <strong>+1079%</strong></p> <p><strong>2) Buy the dip at 10%</strong></p> <p>$100 saved and put in a pot each week. When the price dropped 10% below the 7 day moving average (the average price for the past 7 days) I used all the saved money to buy Bitcoin. <em>(using historical data, this could be calculated by looking at whether the 'low' price for the day was more than 10% lower than the MA for the past 7 days and then 'buying' bitcoin at a price of the MA minus 10%)</em> </p> <p>Results:</p> <p>Total spent: <strong>$26,300 (with $300 left over)</strong></p> <p>Dips bought: <strong>79</strong></p> <p>Total BTC bought: <strong>7.9769</strong></p> <p>Total value (as of 18 July 2021): <strong>$252,514.74</strong> (including leftover $)</p> <p>% returns: <strong>+949%</strong></p> <p><strong>3) Buy the dip at 20%</strong></p> <p>$100 saved and put in a pot each week. When the price dropped 20% below the 7 day moving average (the average price for the past 7 days) I used all the saved money to buy Bitcoin. </p> <p>Total spent: <strong>$26,200 (with $400 left over)</strong></p> <p>Dips bought: <strong>23</strong></p> <p>Total BTC bought: <strong>9.0340</strong></p> <p>Total value (as of 18 July 2021): <strong>$286,036.14</strong> (including leftover $)</p> <p>% returns: <strong>+1075%</strong></p> <p><strong>Conclusion:</strong></p> <p>While this is only a couple of many possible Buy The Dip strategies, so far it doesn't seem that saving up and buying after a crash offers any significan benefit over just investing regularly over a period of time, in fact returns were weaker for both dip buying strategies. One reason for this, is it's impossible to tell how big or small a dip would be, so buying will often be too early at 10% when the price drops further, or a buying opportunity missed if you wait for it to dip 20%. Nevertheless there is merit to both strategies, and I will challenge anyone on the forum to find a Buy The Dip strategy that offers significantly better returns than DCA over a long time period. </p> <p><strong>Further notes:</strong></p> <p>- I will post the link to the spreadsheet data in the comments. This post was ghosted before so no one could see it and I think the reason was the links.</p> <p>- I decided to use the 7 day moving average as it would give a reasonable price to compare the dip to, 7 days means that no matter what day in the cycle you are, your data will be 5 weekdays and 2 weekend days. Using single day data proved to be a bad idea because a 'dip' could just be a dump following a 1 day pump, we wanted an actual dip compared to an expected price. </p> <p>- Historical price data was sourced from investing dot com website.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Wargizmo"> /u/Wargizmo </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/omosy6/dca_vs_buy_the_dip_an_analysis/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/omosy6/dca_vs_buy_the_dip_an_analysis/">[comments]</a></span>Kind Regards R