Mizar | DCA Bots: Maximum vs. Expected Investment
What is the difference between the two and which one should you use?
Choosing the right amount of assets to invest, the size of your orders, and how many positions to name a few examples can be difficult choices to make when copy trading. However, with Mizar’s new investment form we aim to solve some of these issues for you. Before digging into it, let’s first dive into how a DCA bot typically works.
How does a DCA bot work?
As explained in our DCA bot review article a DCA Bot will:
- Automatically buy and/or sell crypto at regular intervals to reduce the entry price of a position over time.
- Mitigate volatility risk reproducing the DCA trading strategy, but without the needs of your inputs after setting up the Bot.
- Once a Buy Order is opened, the bot will monitor the price and open a new Safety Order based on your settings.
When allocating assets to a DCA bot, risk and exposure to the market (e.g. open positions at the same time) are important parameters that have to be carefully considered. The traders will have to ask themselves the following questions:
- What is the maximum investment?
- What is the expected investment?
Let’s define the two parameters.
With Maximum Investment, it usually goes by the “worst-case scenario”. We call it the “worst case scenario”, because all the Safety Orders are open at a single time (The Maximum Investment can substantially differ from the Expected Investment as both are calculated in very different ways. The advantage of the Maximum Investment method is that you have a way to measure the maximum exposure the bot could bring.
Example: I set up a bot with 30 USDT as a base order, which can open 4 Safety orders at max. Let’s say I buy 30 USDT of BTC, and the price goes hardly against me, depending on the settings of the bot it might end up DCA’ing up to 150 USDT, i.e. adding on top 120 USDT (4 Safety orders). On the one hand, this reduces the average entry price, on the other hand, it’ll increase my exposure to the market since I now own $150 worth of BTC instead of $30!
With Expected Investment, it usually goes by the “expected scenario”, i.e. what is probably going to happen. This means, based on historical information, how many Safety Orders do I actually expect to open at the same time?
Example: In normal scenarios (no crash or hard dips) my bot might open on average only one Safety Order. That means, if my base order was originally 30 USDT, I expect on average to open an extra Safety Order on top, i.e. having $60 worth of BTC in my pockets on average.
How Mizar helps its users to understand the Expected Investment
When copy-trading, Mizar will support you to understand what to expect from the DCA bot by calculating the Expected Investment based on the last 30 days' actual trader performance. This means Mizar developed a system capable of estimating the probability of your bot opening a Safety Order at different times based on actual historical statistics.
On Mizar you can invest in a strategy in two ways: inputting the Buy Order and max. amount of positions (advanced mode), or simply inserting your expected investment (basic mode).
When you’re trading in Advance mode, you’ll be asked to insert the Buy Order Size and Max. n. of positions. The buy order size is the size of the first order to be opened when an open signal is triggered (eg: buy 0.001 BTC when the price gets to $23,000). To this, Safety Orders will be added on top depending on the DCA settings. The max. n. of positions tells me how many positions I can potentially have opened at the same time (for example, I can buy BTC and ETH, at the same time. This will be 2 different positions). Based on these parameters and the trader performance statistics, Mizar calculates what would have been the average investment (as the sum of all the Buy and Safety Orders sizes) you would have had if you would have invested over the last 30 days.
When you invest in Basic Mode, you are simply asked to input the Expected Investment. Based on this information Mizar calculates back what Buy Order Size and Max. N. of Positions you would have needed to invest that expected amount.
What are the PROs & CONs of Expected Investment?
Mizar developed the Expected Investment calculation tool to support users in taking out as much of the legwork and guesswork as possible.
- Up-to-date historical data
- Zero guesswork, base your investment on actual data
- No prior trading knowledge required
- The Expected Investment is based on historical data and it will not represent in any way future results.
As the Expected Investment is based on historical data. There is no guarantee of future results being the same. Your investments are your responsibility and we at Mizar help you by providing every tool and statistic possible but do not consider any of this as financial advice.
Now that we have refreshed your mind about DCA Bots and how to apply the different investment forms. It will be up to your preferences and prior trading knowledge to choose the way that fits best for you. Join Mizar and start trading today! It’s never been easier and you can get started with just a few clicks.
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