EDCA a better way to DCA?

# Introduction

With the market in a strange place I have been seeing and increasing number of posts about DCA, with this in mind some people might be interesting in some research I have been doing lately. I have been updating a DCA bot I wrote and shared here a while ago, with the intention of adding an improved DCA method to the script. Because of this I have been doing some research on different methods of DCAing into an asset, I was just going to include it in the post I made about the bot but there ended up being a serious amount of information, a lot of which I don’t think has been posed here before, so I decided to split this up into two posts. This will be a relatively long post because I have found 2 different methods of DCAing that I will cover below.

# Dollar Cost Averaging

I am sure almost everyone knows what Dollar Cost Averaging (DCA) is, there are a couple of different ways to do it, in my opinion the most effective way is to put a small amount of your disposable monthly, weekly or daily income into an asset, if you have 10k to invest I personally don’t think DCAing is a good idea, as you are betting that the market won’t always trend up with time, but this is debatable. So are there any ways to improve this? Well yes and no, the advantages of two different DCA methods below, but it is also clear that you will get a smaller return on investment (ROI) if you do them all the time.

# Enhanced Dollar Cost Averaging

I found this method discussed in a paper from 2011, you can read it in more detail [here]( on paper it seems like it will produce better results. “Enhanced Dollar Cost Averaging (EDCA) performs better than traditional DCA 90% of the time and works even better with highly volatile assets” (So it’s made for Crypto). Simulations found that “EDCA returns between 30 and 70 basis points more than traditional DCA” (fancy way of saying between 0.3% and 0.7%).

I know what you are thinking this works better with highly volatile asset it must be perfect for Bitcoin and crypto, well lets look into that.

# How does it work?

So how does it work? Well the investment strategy follows traditional DCA closely but allows for a slight change to take advantage of new market information. The EDCA strategy invests a fixed additional percentage after a down period of time, for example let’s say a month, and reduces the investment by a fixed amount after an up month. Specifically, it invests an additional $Y in month t+1 if the return in month t is negative, and invests $Y less in month t+1 if the return in month t is positive.

# So does it work?

Is EDCA better than DCA? In a one word answer, **NO.** But as all things in life it’s a little bit more complicated than that.

Lets do out an example with bitcoin, the base monthly contribution for the DCA strategy means that the monthly investment amount is $100. For an EDCA strategy with a value of Y=10%, contributions are increased by 10% (to $110) when the past month’s returns are negative, and decreased by 10% (to $90) when the past month’s returns are positive.

So for this example we’ll take the price history from January 2012 to March 2021. So over these 110 months we get the following results.

​

|Method|$ Invested|Bitcoin|ROI|
|:-|:-|:-|:-|
|DCA|11100|213.85|841.90%|
|EDCA|10820|184.09|743.53%|

Okay so this is great, because Bitcoin trends up with time we generally have more green months than red months therefore we make substantially less gains, we would be far better sticking with a normal DCA strategy.

However, is there any time this will work? Let’s do these calculations for this out for each year since 2014, the gains from 2012 and 2013 are just insane and the market wasn’t very mature anyway.

|Year|Method|$ Invested|Bitcoin|Today’s ROI|
|:-|:-|:-|:-|:-|
|2014|DCA|1200|2.4|8732.02%|
|2014|EDCA|1130|2.24|8640.45%|
|`2015`|`DCA`|`1200`|`4.61`|`16785.99%`|
|`2015`|`EDCA`|`1090`|`4.3`|`17241%`|
|2016|DCA|1200|2.31|8418.62%|
|2016|EDCA|1070|2.04|8337.32%|
|2017|DCA|1200|0.65|2357.06%|
|2017|EDCA|1050|0.53|2220.18%|
|`2018`|`DCA`|`1200`|`0.16`|`598.42%`|
|`2018`|`EDCA`|`1150`|`0.17`|`631.37%`|
|2019|DCA|1200|0.2|741.33%|
|2019|EDCA|1090|0.17|696.92%|
|2010|DCA|1200|0.12|451.54%|
|2020|EDCA|1070|0.1|403.9%|
|`2021`|`DCA`|`1200`|`0.027`|`-2.54%`|
|`2021`|`EDCA`|`1090`|`0.026`|`0.22%`|

**^(Note ROI calculated on a price of $43676.70 per BTC)**

You can see the red years are the years where EDCA out performed DCA, and these fall in line the long bear markets, but interestingly 2021 which was very volatile. So while this method does perform very well in a bear market when it comes to ROI, it is still interesting to see that in general we end up with less Bitcoin, however this is most likely due to how I did the calculations as in my method EDCA only bought for 11 months where as DCA bought for 12 months.

# Dollar Cost Averaging using RSI

After further searching I found a couple more DCA strategies in this post by [momentum analytics]( all were using daily investments and so I am not fully sure if this will work on longer time frames. The one I chose to analyses was buying when the 90 day RSI close was below 50 and then putting the rest of the cash you would have aside for future investment or into other assets.

# How and does it work?

A visual representation of that can be seen in the image below, whenever the RSI falls below the 90 day RSI we buy $10 of Bitcoin.

[When the 90 RSI falls below the green line then we buy Bitcoin at the corresponding price ](

Following this method we get the following results from 2014 – present day, and again as with the past method, we get a smaller ROI, although it should be noted that in the RSI version we are left with an extra $16240 to spend. If there was a way to make this method more dynamic, by increasing the amount we invest when under 50 on the RSI rather than saving we would potentially make a greater ROI, I may run those calculations, but that’s for another day. It might be worth playing around with this, and checking to see if it works for weekly or monthly DCA’s as well.

|Method|$ Invested|Bitcoin|ROI|
|:-|:-|:-|:-|
|DCA|27060|26.97|4353.93%|
|DCARSI|10820|12.63|3416.04%|

I don’t feel like this method warrants the a year by year breakdown of results as the graph shows very clearly when the most profitable times are to buy, surprise surprise they correspond to bear markets.

# Conclusions

Okay this post is getting very long and I am sure you are getting tired, so what can we take away from this? Is there a better way to DCA? Well it depends, to me it looks like the strategies I have outlined here both have advantages in bear markets over traditional DCA and that is what I expected. The whole reason I planned to do this was because I wanted to create a a DCA bot that could change it’s function depending on the market conditions. The way I look at it I am always going to DCA but maybe I can increase my DCA period when in a bear market, and the RSI could very well tell me when to do this, and thus the bot could switch from DCAing to EDCAing with a greater amount of money than my regular DCA method. This is something I might test on historical data and I could share the results if there is enough interest in this post.

Anyway I thought I would share this and hopefully others will find some use in it.

If you have found other methods of DCAing I would really appreciate it if you could send them to me so I can both analyze and include them in a future post.

Please let me know if you have any questions, as I said I will also share the DCA bot in future, but currently I’m swamped in work haven’t gotten time to finish it.

**TLDR:** Do other DCA methods work? It depends, they return greater ROI during bear markets, but traditional DCA performs better overall.

**EDIT:** Thanks for the kind words, this is my first post like this. I know it’s not super detailed analysis but I thought it was worth exploring. A couple of you have reached out with some really interesting suggestions and I will defiantly be implementing some of them.

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44 thoughts on “EDCA a better way to DCA?”

  1. Yeah, just dca and if the prices drop, buy more than normal. When the prices are high, consider funding a stable coin or something could use later when the prices go down.

    Reply
  2. Everyone is wondering if DCA is better or EDCA, while I’m thinking about where to get money to DCA.

    Btw it’s quality post, thanks OP.

    Reply
  3. Great write up OP – an interesting take on alternative methods of investing.

    Personally I don’t add much to my bag on a monthly basis, but when I do I tend to look across the different coins I hold and see which one seems to be the most undervalued at that time (I’m aware this is massively subjective), as well as trying to loosely stick to the same sort of split between coins that I currently hold. Last month Algo and DOT seemed to be down further than they had been for a while, so I bought those rather than ATOM, which had maintained a relatively high price.

    Is it more effective than just buying according to my current split every month? Possibly not, although it does feel like I’m getting slightly ahead through doing it. The main risk with this is that you could end up not buying a crypto with stronger price performance for a number of months (depending on how stringently you stick to it).

    I agree with U/milonuttigrain on keeping a bit back for those unexpected drops too, although it’s something I never really factor in each month (and usually regret not having the spare funds when there’s a drop).

    Reply
  4. This is gold, finally a quality post between a sea of reposted stuff out there.

    I like dynamic DCA, so keep up regularity but also spare money to buy the dip when market indicator (such as RSI) shows the coin is undervalued.

    Reply
  5. I’ll give thumbs up for this write up. Overall it seems it is not worth a time for average investor. Someone who is willing to invest time and adjust the percentage every time according to market could have a better return.

    Reply
  6. I’ve found the best way for me is to basically DCA based on movement. When BTC has vicious drops, that’s when I go in. I almost never do it on the way up unless it’s clear a trend is being established. It’s been sideways for a year now, and chipping away on the violent days has left me with an average buy over the last year of about 34,000. Should I have bought weekly, I would have had a much higher average.

    Reply
  7. This is too complicated for my brain cells to process, given that I’m only an ordinary person putting money in speculative assets. I just do weighted DCA though, only a bit different that the regular one.

    If market is sad I save a portion of my DCA money maybe 25-40% and put it in a “bank”, DCA ensures that I still have money in regardless of the market sentiment. Then when the market stops dumping (sideways movement) I use 100% of my DCA money use funds from the “bank” slowly. Then if it start pumping I ultimately lower my dca money and just put more than half of it in the “bank”.

    Reply
  8. Very interesting post.

    How about changing it so that the bot always has to invest the same amount each month but doesn’t necessarily have to do it at the same time.

    So it looks at the price and if it reaches certain criteria it invests. That criteria could be that it is down in the preceding 24hrs.

    You could even set it to do a % of the total monthly allowance each time the criteria is hit until the total allowance is spent. Then if the criteria wasn’t met by that point it just invests on the last day of that month fully.

    Thereby you always DCA but you are trying to time the best points within that month. Of course if it only ever goes up you would have been better investing fully at the beginning of the month but you do still invest.

    Reply
  9. OMG this site is for apes posting losses not ex finance advisors helping the masses. If all of us Apes make money with our smooth brains we can all get rich right? 99% of traders win 1% loose everything?

    Reply
  10. That pretty much looks like rsa, dsa, ecdsa encryption algorithms for Ssh/SSL (public key cryptography). Loving it when tech terms get into everyday life. 😉

    Reply
  11. That’s a lot of words to explain a rather simple concept.

    This post reminds me of high school when your teacher asked you to write 5 pages minimum so you just wrote a bunch of BS to fill up the space lol

    Reply
  12. Oh oh but did you know mayweather and Kim got sued. And umm oh yeah, two people got arrested for stealing 3.4 billion 😩 can’t stand this subreddit anymore

    Thank you OP for bringing some knowledge and actually helpful dialogue

    Reply
  13. So you’re telling me EDCA works better in a bear market… but how do I know if I’m in bear market when shit is so volatile.

    OP knows shit about fuck but doesn’t know fuck about shit.

    Reply
  14. From my own experiments with historical bitcoin data, daily DCA is the best. Weekly not far behind.

    If you know the price a day in advance, the profit is stupidly huge, but my crystal ball doesn’t work well enough for that.

    Reply
  15. Thanks for sharing, bro. The truth is that we see many strategies coming up every day, but the main point is that people doesn’t have an essential element called patience. As someone once said, “the market is a mechanism that transfers money from impatient to patient”. We have limited information about the projects in relation to its own team, so all we can do is to do our own research, buy more when we can and hodl. For me is simple as that.

    If I’ve already bagged a project that I really trust and it goes down like 20%, I see no reason for not buying more. Polkadot is a great example, mainly from what we are seeing coming from Astar Network, Moonbeam, Unique Network and Polkadex (parachains/future parachains). Price is not following recent news. I’m not saying that it’s not important to know more about EDCA/DCA. My point is that nothing will work without patience. Take care.

    Reply

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