What is DCA and Laddering?
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There are many trading strategies that traders use when trading crypto. In this blog, we will discuss the top two methods that traders use, which are dollar-cost averaging (DCA), and laddering bid and offers. In each strategy, traders avoid going all-in or all-out, as alternative traders scale their positions in and out of the market.
As a crypto trader, you always want to buy or sell at the best price in the market. The leading problem trader’s face is that the market is always moving. When the market is at its lowest point, it is hard for traders to enter. To rectify this issue, traders have come up with a technique, Dollar Cost Averaging (DCA) that mitigates the effects of volatility. To use DCA, traders will pick the asset they would like to trade into and bid equal orders consistently at regular intervals until they have reached their max size. So when price increases and decreases, traders will be investing a set amount of money. DCA helps lessen the effects of price fluctuations, which lowers a trader’s average buying price.
For example, a trader has 5,000 USDT in their wallet, and they want to buy into Bitcoin and BTC price is most definitely volatile. To lessen the effects of volatility, traders will invest by using the DCA method. They plan to spend 1000 USDT every Sunday for the next five weeks. Over time, when the trader invests, they will have different price entry points for BTC. However, over the five weeks, their average investment price cuts through most of the volatility. Dollar-Cost Averaging is a simple strategy but is seen as a reliable way of entering a market. The above is just an example of one way to use DCA, as an alternative version of the DCA strategy, traders can break this up to weekly buys, or daily buys, or bi-monthly buys, or aim to buy only on the dips, there are many ways to use DCA.
Another trading strategy trader’s use is called laddering; traders can ladder any order. When laddering, traders want to look at the price history of the asset they are trading to find support levels, and they will also want to look at the order book to see at what price they demand is at different entry points. The concept of laddering is that instead of buying or selling at the current market price only, traders can spread their bid or offer amount between the market price and the price the trader thinks it will trigger.
In conclusion, traders can create more complex strategies using DCA and laddering, but any level of strategizing using the above two methods can help traders out significantly. No matter what level the trader is skill-wise, to find the correct timing of when to buy or sell in the crypto market is a very challenging task. Laddering and DCA confine the odds of traders missing any opportunity in the market.
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