My Long-Term Crypto Investing Strategy: Assertive Dollar-Cost Averaging

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Like most of you, my long-term strategy, whether I’m investing in cryptocurrency, stocks, real estate, or anything else, is to make and keep as much money as I can. However, trading and investing can be full of risks and researching the appropriate investments and strategy can be a full-time job in and of itself. For those reasons, financial advisers and investment gurus around the world encourage people to leave active trading to investment banks and hedge funds. Instead, they often recommend that average joes like us entrust our investment portfolio to a dollar-cost averaging (aka DCA) strategy.

Dollar-cost averaging has seemingly stood the test of time and has been shown to reduce the risk of investing a large sum of money at the wrong time (i.e., when the market is overpriced) and reduce the amount of effort needed to regularly invest in an asset like cryptocurrencies. But what if dollar-cost averaging could be improved? What if market signals could be used to accentuate the returns received from the standard DCA strategy? Introducing my long-term investing strategy: Assertive Dollar-Cost Averaging (aka ADCA).

Dollar-Cost Averaging My Way to Success

I started out my investment journey with dollar-cost averaging, and for those readers who are new to investing, a brief review of how it works may be helpful. Dollar-cost averaging consists of investing a specific amount of money into an asset at regular intervals over a set amount of time. 

For example, perhaps I’d like to invest $1,000 into Bitcoin. But Bitcoin can be rather volatile, and I don’t want to risk investing all of my money at once right before the price potentially plummets. In this hypothetical scenario, I could use dollar-cost averaging to invest $100 a month for ten months. Or perhaps I invest $50 a month for just over a year and a half. Whatever the amount and length of my investing, with dollar-cost averaging it is imperative that the same amount be invested with the same regularity over the desired time period.

There’s another benefit of dollar-cost averaging that we haven’t discussed yet. Because the same amount of money is being invested no matter the price of the underlying asset, you naturally acquire more of the asset when its price is lower, and less of the asset when its price is higher. This takes advantage of another piece of great investing advice that certainly everyone has heard: buy low. But dollar-cost averaging does nothing to actively tell me whether the asset’s price is actually high or low. I won’t know until months or years later when I have the benefit of hindsight.

Assertive Dollar-Cost Averaging My Way to Greatness

Everyone knows that “better” trading is possible. We’ve all heard about investment banks and hedge funds that make billions of dollars a year while leaving all the scraps for us common folk. So what is it that sets professional traders apart from the rest of us? Other than pure luck, a large part of a professional trader’s edge comes down to technical analysis. Simply put, traders use technical indicators to determine where the asset’s price is in relation to where it’s been and where it might be going based on current supply, demand, and performance. Technical analysis can certainly be more risky than dollar-cost averaging, but it can also be vastly more rewarding.

When I decided that I wanted to do more than just dollar-cost averaging my way to success, I wondered if there was a way that I could combine what I liked about dollar-cost averaging with what I understood about technical analysis. The end result? Assertive dollar-cost averaging.

Assertive dollar-cost averaging works like this: I decide a range of how much money I’d like to spend on average (e.g., $10 - $20) and how frequently I’d like to invest (e.g., weekly). I then identify a few technical indicators (more on these below) that I’d like to use to make an educated guess as to whether the asset’s price is “high” or “low”. If the asset’s price is “high”, I buy an amount towards the lower limit (i.e., $10) of my hypothetical purchase range. This means I buy less than I would with a DCA strategy because I believe the price is “high”. If the asset’s price is “low”, I buy an amount towards the upper limit (i.e., $20) of my hypothetical purchase range. This means I buy more than I would with a DCA strategy because I believe the price is “low”.

In a nutshell, assertive dollar-cost averaging allows me to DCA into an asset like Bitcoin, while also being sensitive to fluctuations in price so that I can buy more when the price is “low” or buy less when the price is “high”. If assertive dollar-cost averaging works, my returns over time should significantly outperform the returns of a basic dollar-cost averaging strategy into the same asset.

So Does Assertive Dollar-Cost Averaging Work?

If not, there would be no sense in doing it, right? I’d be losing out on extra money and spending a lot more time investing than I would with dollar-cost averaging. In addition to using assertive dollar-cost averaging in my own actual portfolio, I decided that I would set up a long-term experiment to directly compare the results of an ADCA strategy against a DCA strategy.

My asset of choice to perform the test is Bitcoin, however any asset like Ethereum, Tesla, or an S&P 500 fund could be used. To increase the number of results I can get over shorter time frames, I decided to track a hypothetical daily investment into Bitcoin of around $5 for ADCA, or exactly $5 for DCA. 

Figuring out the amount of the DCA investment is easy. If the price of Bitcoin is $20,000, a $5 purchase would net me .00025 BTC. If the price of Bitcoin is $60,000, that same $5 purchase would net me about .00008333 BTC.

Figuring out the amount of the ADCA investment requires a bit more effort since I’m combining DCA with my chosen technical indicators. To simplify it, I created a proprietary formula that would allow me to calculate the purchase amount by simply modifying a few inputs, like the daily Bitcoin price.

So how has my ADCA vs. DCA experiment gone?

After eight months of tracking (i.e., about three weeks ago since I prepare the summary once a month), the hypothetical ADCA strategy had outperformed the DCA strategy by almost 80%. To simplify, spending more money on Bitcoin when the price was “low” and less money when the price was “high” had juiced my returns as I had hoped.

An important qualifier for my ADCA strategy or any investing strategy is that returns will be very reliant on the underlying price of the asset. Meaning that returns for both my ADCA strategy and the DCA strategy will be higher when the price of Bitcoin is higher or lower when its price is lower. However, I hope to prove with my experiment that my ADCA strategy outperforms a DCA strategy over long periods of time whether the underlying asset’s price is higher or lower.

Because this is not investment advice and everyone needs to do their own research before investing in any asset, I will not be sharing the ADCA formula that I’ve chosen to use. However, feel free to follow the progress of the ongoing ADCA vs. DCA experiment on my Instagram @assertive.crypto.dca or my Twitter @thehififinance.

So Which Technical Indicators Do I Use For Assertive Dollar-Cost Averaging?

There are many technical indicators that professional traders use to gauge an asset’s current performance and price, such as moving averages, the relative strength index, and Bollinger Bands®. Each technical indicator serves a unique purpose and identifies specific information. Noone should apply any technical indicators to their investment portfolio without thoroughly researching and understanding it beforehand.

To develop my ADCA strategy and formula, I decided to focus my attention on two technical indicators, moving averages and the fear & greed index. This helped me avoid putting too much “noise” into my analysis if I had included a large number of different technical indicators.

I use the 50-day and 200-day simple moving averages as reference points for the current Bitcoin price. So when the current price is below those two moving averages, my Bitcoin purchase is larger and when the current price is above those two moving averages, my Bitcoin purchase is smaller. I personally prefer to look at longer term price trends, so I give slightly more weight to the 200-day simple moving average.

The fear & greed index is used to gauge market sentiment (i.e., how people feel about the market) around Bitcoin. It was Warren Buffett who said “Be fearful when others are greedy. Be greedy when others are fearful”. So I follow that maxim by buying more Bitcoin when the fear & greed index shows that people are fearful and by buying less Bitcoin when it shows that people are greedy.

In The End, My Gains May Seem Inevitable

But they are not and neither are yours. Any investing strategy should be taken with a grain of salt. While I fully believe that the Assertive Dollar Cost Averaging strategy can help me make money, that is not guaranteed.

This post is not investment advice. Cryptocurrencies, stocks, and similar assets can be speculative and risky. You should not invest unless you are prepared to lose the entire value of your investment. Always do your own research and seek professional advice from a licensed investment advisor.

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