Why Dollar Cost Averaging (DCA) is the Best Strategy for a Volatile Market
The market is highly unstable. Prices jump, charts break, and deposits melt. In this environment, classic strategies that worked for decades are failing.
The cryptocurrency market dictates its own rules. Heavy-tailed return distributions and structural volatility rule here. To survive and earn, you need a different approach. Not guessing, but mathematical calculation.
This article is a breakdown of the averaging algorithm (DCA). We will explain why averaging works better than passive waiting, how geometric progression saves positions, and why volatility is not an enemy, but fuel for your capital.
Why Predictions Don’t Work, and Chaos is Your Friend
The main trap of trading is the belief in predictability. Traders spend hours drawing lines on charts, trying to find logic where chance rules. The Random Walk Theory is ruthless: price movements are independent, and the market instantly absorbs any information.
In crypto, this is taken to the absolute. Trading goes 24/7, prices are influenced by Fed rates, influencer tweets, and market maker manipulations. Trying to catch the perfect bottom or peak is mathematically doomed: over a long distance, the probability of success tends to a coin flip.
An investor who bought an asset on hype becomes a hostage. Their capital is frozen, and nerves are on edge. You just wait for the market to grow back.
At Veles Finance, we look at fluctuations differently. If an asset’s price moves in a 10-15% corridor without a clear trend, a regular holder gets zero. Their balance doesn’t change. An algorithm, however, squeezes liquidity out of every movement.
While the price rushes up and down, the bot makes dozens of trades. Mathematically, this is a way to avoid the “absorbing state” (complete loss or freezing of money) and make capital work constantly. We exchange risk for systemic profitability.
The Magic of Averaging (DCA)
Why does the Dollar Cost Averaging (DCA) strategy win? The answer lies in the inequality between the arithmetic mean and the harmonic mean.
Imagine you invest a fixed amount in equal shares as the price falls. When the asset gets cheaper, you buy more units for the same money. When it gets more expensive — fewer.
With this approach, the average entry price will always be lower than the average market price for the same period. You gain an advantage not through foresight, but through the very structure of the trade. While others panic during a drawdown, you improve your average entry price.
Veles goes beyond calendar purchases. The platform uses algorithmic position averaging during a drawdown. The bot reacts to price, not time.
Asset dropped by X%? The algorithm buys more. This rapidly lowers the Breakeven Point. You don’t need to wait for the price to return to the initial level to break even or profit. A small bounce is enough.
Tuning to the Market Character
The efficiency of bots is built on risk configuration. The two main control levers are the volume multiplier and the step multiplier. Understanding these parameters separates a pro from a beginner.
Exit Acceleration
This parameter sets the volume increase coefficient for each subsequent order. It’s a modified Martingale, put to the service of safety.
Let’s say the multiplier is 2.0.
- First purchase: 10 USDT
- Second purchase: 20 USDT
- Third purchase: 40 USDT
Why is this needed? The last purchases, made at the lowest prices, carry the most weight. They literally pull the average entry price down to the current market price.
To close the trade in profit, the price doesn’t need to return to the start of the fall. It only needs to recover a small part of the movement. In a market where V-shaped reversals are rare, but corrections happen constantly, this feature becomes the decisive factor for victory.
Price Trap
A linear order placement (buying every 1% drop) is disastrous during sharp crashes. You will spend your entire deposit at the very beginning of the fall, and the bottom will remain uncaptured.
Veles uses a logarithmic grid via Step Scale. We stretch the orders. With a step multiplier of 1.5, the density of orders decreases as the price falls.
- First order: -1%
- Second order: -2.5%
- Third order: -4.75%
- Fourth order: -8.12%
The deeper the market falls, the higher the volatility and panic. A wide grid allows the bot to survive a 30-50% drawdown with a limited number of orders, buy at the very bottom, and efficiently use capital.
Settings must be balanced. An aggressive martingale requires a wide step, otherwise you will build a huge position on a small movement.
Veles automatically calculates the required amount of funds. You immediately see how much money is reserved for the strategy. A situation where the bot runs out of money for averaging in the middle of a cycle is excluded at the launch stage.
Probability Filters
DCA works perfectly when the first entry is made not randomly, but in a zone of statistical oversold conditions. Veles uses indicators as a safety fuse.
RSI: Mean Reversion
The RSI (Relative Strength Index) indicator measures the momentum strength. A value below 30 indicates that the speed of the price drop has reached anomalous values. The market is overheated with sales.
According to the Mean Reversion hypothesis, after such a drop, the probability of a bounce is statistically higher than the probability of the crash continuing.
By launching a bot on an RSI < 30 signal, you get a mathematical expectation of a successful first order above 60%. If the prediction doesn’t come true — the insurance in the form of averaging kicks in.
Bollinger Bands: Catching Anomalies
This tool is based on normal distribution. Statistically, the price stays inside the Bollinger Bands 95% of the time. The price breaking the lower band is a rare event, an anomaly.
The entry setting “Price is below the lower band” means buying at the moment of a panic deviation. The market always strives to return to normal. The probability of the price returning inside the channel over distance tends to an absolute.
The combination of RSI and Bollinger Bands filters out market noise. The bot enters a trade only when the probability is on your side.
Risk Management: How Not to Lose Your Deposit
Critics of averaging often scare people with a complete loss of capital during a relentless drop. But in Veles, this risk is mitigated by the strict framework of the algorithm.
Loss Limitation
Infinite averaging does not exist. If the price breaks the bottom of the grid, the bot stops buying. But here lies the main risk of futures: a position built with Martingale draws a huge margin.
To avoid liquidation during a relentless drop, Veles allows you to set a strict stop-loss. Yes, you will fix a loss. But you will save 80-85% of your deposit and win back the negative balance next week, instead of losing everything in one day.
Dynamic Take Profit
Veles doesn’t wait for a fixed price. Take-profit is calculated from the average entry price. As averaging progresses, the exit bar lowers. This is the “trailing exit” effect: the deeper the drawdown, the easier it is to jump out of it with a profit.
Fair Economics
We take a commission only from profit. No profit — you pay nothing. At the same time, there is a strict limit (Cap) of 50 USDT per month. For a trader with a large deposit, the real commission is pennies in percentage terms. This is fairer than models with endless Revenue Share.
Conclusion
Analysis shows: the averaging strategy, reinforced by a geometric progression of volumes and a smart order grid, statistically dominates the modern market.
The advantage of Veles is not in predicting the future. We do not know where the price will go in a minute. But we know how to extract profit from any scenario.
- Lowering the average price allows earning even in a falling trend.
- A logarithmic grid protects against “black swans”.
- Indicators launch the algorithm only in moments of your advantage.
For an investor who wants to systematically grow capital, the transition from intuitive trading to algorithmic DCA is an evolution. It’s a step from a guessing game to professional probability management. Set up your first bot. Let math work for you.
