Dollar-Cost Averaging (DCA) vs Buying the "Dip"

Dollar-Cost Averaging (DCA) vs Buying the "Dip"

Hi all,

I have been learning about Bitcoin for the past few months and am trying to figure out the best investing strategy for myself. As an experiment, I analyzed and compared two strategies, DCA and Buying the "Dip" and I have some interesting results that I wanted to share with you guys.

Disclaimer: This is not financial advice but for educational purposes only.

Period: Between April 2020 and April 2021.

Strategies:

  • DCA (weekly on Wednesday, bi-weekly on Wednesday, monthly on the 1st): Total $800/month
  • Buying the "Dip:" I define the "dip" here as when the price of Bitcoin drops to a certain threshold after its most recent all-time high (ATH). For all the periods that I am not investing, I am simply accumulating my USD. I am assuming that I will be able to add to my fund $500 twice a month, on the 15th and 30th. My investment fund will be divided into three parts and it will be invested as follow. I will invest 1/3 of my fund when BTC drops 20%, another 1/3 when BTC drops 50%, and the last 1/3 when BTC drops 65%. If for example, BTC drops 20% and bounces back to another ATH, I only use 1/3 of my investment and hold the 2/3 for the next dip.

To my surprise, all DCA strategies outperformed buying the "dip" by roughly 50%. Of course, hindsight is 20/20 and this is a very simplified model. No one can really time exactly when Bitcoin is going to drop. Invest smartly and only invest what you are willing to lose. Let me know if you have any suggestions on how I can improve my investing strategy.

​

Weekly (on Wednesday)

Bi-Weekly (on Wednesday)

Monthly (on the 1st)

Buy the \"Dip\"

submitted by /u/npvlong
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