One thing I don’t get about DCA… (maths involved)

Using delta tracker, for example.

So, we’ve bought 2.5 of an asset at £325 cost. (Roughly £130 per coin)

You buy another lot for £50.13 getting .61

Another lot for £50.13 getting .61

Current market price stipulates a loss of £121 on your 2.5 coins.

You’re 1.21 is sitting happy at roughly +£4 (well £2ish on each .61 purchase)

What point would you actually be in the profit on your total coins? (I appreciate the costs are different but the avg cost still went down)

At the £425 mark (your investment) or once each coin goes above the £114? I don’t get it, because average cost is down from £130 but I still am out of pocket £121 🤷🏽‍♂️

Just being a noob is all! 😂

Tldr
How do multiple buys of a coin at different price points work at averaging out your cost when one buy puts you at a hundred loss.

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13 thoughts on “One thing I don’t get about DCA… (maths involved)”

1. So, you spent a total amount of \$425.26.
That got you a total of 3.72 coins.
425.26÷ 3.72= \$114.32 per coin.
So if current price is above \$114.32, your in the green.

I know I used dollar instead of pound, but I can’t find the pound symbol….

2. The idea is that as an investor you agree that you cannot market time, I.e. buy at the lowest point, so you buy a little bit at each interval over time. Importantly, you continue to buy all the way down a recession and back up; this is what constitutes a large part of one’s gains.

DCA only works if the underlying fundamentals are sound. It won’t work with an index fund of junk bonds, index fund of shitcoins, or index fund of OTC stocks. People think DCA will solve all their investment problems and it won’t.

3. DCA is a long term strategy. Proper assets always go up in price in time. Easy.

If you did lump sum at the start, you’d have how much coin after having spent how many fiat?

At the end of your DCA, you’d have how much coin after having spent how many fiat?

See which one leaves you with more or less coin after spending the same fiat.

5. How much did you spend in total? How much would you gain/lose if you sold it all? Is this a real question or a joke I’m missing buried in there? Or am I the n00b/moron??? lol 😂

You’ll break even on everything when price gets back up to that avg.

All pre-tax, of course.

7. You’re thinking of every single transaction needing to justify each other – often, they don’t.

There have been several posts about DCA – people picking specific days, specific times, single transactions versus multiple transactions per day, etc etc

From what I can remember – didn’t really matter which way you did it – all it does is discipline you to NOT put your entire life savings into btc when it’s \$60k because you read a post that it’s going to \$100k tomorrow

Overall, it’s the same philosophy of “time in the market” – you buy a little now, a little more now, a little more now – this way you’re hopefully buying a handful at \$40k, a handful at \$43k, a smaller handful at \$55k – but you keep buying and you keep buying – and sooner or later when it’s at \$100k – you didn’t buy it all at \$60k or \$80k – and hopefully in 10 years it’s not at \$0

8. True DCA is the same amount of MONEY invested at regular intervals. Let’s say you put in \$100 a month, regardless of price.

A coin fluctuates in price. It might go from \$.10 to \$.30 to \$.05.

First month, you get 1000 coins. The next month, you get 333.33 coins. The next, 2000 coins. You end up with \$300 invested and 3333.33 coins at a cost average of \$0.09. The goal here is to stabilize your investment so you’re not as impacted by big swings.

9. Your total cost is £425.26. Your total coin amount is 3.72 coins

£425.26 / 3.72 coins = £114.3172 per coin

This mean your holdings are mathematically equivalent with someone who just bought a lump of 3.72 coins at £114.3172. Let’s call this hypothetical person as Person B. You either view yourself having three separate bags with differing amounts bought at differing prices, or having one single bag just like Person B.

Let’s say the current market price is now £120.

Person B sells their bag. They will sell each coin for £120, giving a result of £446.40 (120*3.72).

Meanwhile if you sell all your three bags, you’d get £300 + £73.2 + £73.2, totalling £446.4 as well. You sold the first bag at a loss of £25, but you sold the second and third bag at a profit of £23.07 EACH.

The average price you compute for DCA tells you the price you need to beat to be in NET PROFIT. It doesn’t mean you sold all bags at a profit; it just means you are still in profit after everything is said and done. Which is one of the reasons why you compute the average price; you don’t want to view it as separate bags.

It’s up to you to decide your trading style, but if you’re still planning to view them as separate bags, then you don’t need to bother computing for the average DCA price 🙂

10. Dcaing is when you buy high like a token is \$50 per token , put less in like \$25 in for 1/2 a token

If it drops to \$25 a token put in enough for 4 token or \$100

11. You not only bring the maths in here it’s in a different language! This is cryptocurrency not physics!

12. Also one important thing about DCA is that you always invest the same amount. This is what allows to bring your average cost down.

Suppose you invest 1\$ in a coin worth 1\$. You get 1 coin at an average cost of 1\$.

Now 1 month later the coin is at 0.5\$ and you invest 1\$ again. You get 2 coins. You now have 3 coins at an average cost of 0.66\$.

Compare this with the scenario where you buy 1 coin each month, you’d be left with 2 coins at an average price of 0.75\$ (and 1 extra dollar in your pocket).

Now do the same for the case where the coin increases in price instead of decreasing, and you get the idea quite easily.