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DCA, dip and ATH

DCA means buying the same amount at regular intervals regardless of price, and a dip is a short price drop. ATH and ATL are the highest and lowest price ever.

Skenuok.lt teamPublished 3 min read

A wavy price: four equal buys at equal gaps (DCA), a short dip, and ATH and ATL marked.
Example: When price breaks its ATH, there are no earlier levels above it on the chart, so it is harder to judge where it may stop.

What DCA is

DCA (dollar-cost averaging) means buying in parts: the same amount is invested at regular intervals, for example monthly, regardless of price. When price is low the same amount buys more coins, when it is high fewer. So the average purchase price ends up below the simple average of those prices. DCA is used more for long-term accumulation than for short-term trading, and it does not say when to sell.

Dip and ATH

  • Dip: a short price drop. "Buying the dip" means trying to buy after a fall, but nobody knows in advance whether the fall is over. DCA does not try to guess the bottom.
  • ATH (all-time high) is the highest price ever, ATL (all-time low) the lowest. When price breaks its ATH, there are no earlier levels above it on the chart, so it is harder to judge where it may stop.

Real example: BTC in 2022

On 10 November 2021 BTC/USDT set its then all-time high of 69,000. Suppose that in 2022, on the first day of each month, 100 USDT of BTC was bought at the daily close. Twelve purchases spent 1,200 USDT at an average price of about 26,400, while the simple average of those 12 prices was about 30,400. On 2022-12-31 BTC was 16,542, so the coins were worth about 750 USDT, roughly 37% less than was spent. The lowest price, 15,476, came on 2022-11-21. DCA smoothed the purchase price but did not prevent a loss.

BTC/USDT weekly chart from October 2021 to March 2023: the 69,000 ATH, the 2022 monthly buying period, the average purchase price of about 26,400 and the 15,476 low.
BTC/USDT, 1W, 2021-10-04 to 2023-03-27, Binance data. The average price uses the daily close on the first day of each month in 2022, fees excluded. A teaching calculation, not investment advice.

Common mistakes

  • Thinking DCA guarantees a profit. If price keeps falling, the average falls with it, but the loss remains.
  • Applying DCA to any coin. If the project collapses, regular buying only makes the loss bigger.
  • Investing money you may need soon.
  • Abandoning the plan after the first big drop, or raising the amounts in euphoria near the ATH. See FOMO, FUD and HODL.

How to practise

Pick a period on a historical chart and list monthly purchases in a spreadsheet: date, price and amount. Work out the average price and compare it with the simple average of prices and with the price at the end of the period. Repeat for a rising, a falling and a sideways period. How to prepare for the first steps is covered in How to start trading crypto.

RiskThis content is for education only and is not financial or investment advice. Crypto trading carries a high risk of loss. We do not promise profits.

Frequently asked questions

Is DCA better than buying all at once?
That depends on what price does later, and nobody knows that. DCA reduces the effect of bad timing and makes decisions easier emotionally, but it does not guarantee a better result.
How often do DCA purchases happen?
Usually weekly or monthly. Consistency matters more than frequency, and so does making sure trading fees do not eat small purchases.
What do ATH and ATL mean?
ATH (all-time high) is the highest price ever, ATL (all-time low) the lowest. The values can differ slightly between exchanges.

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Related terms

FOMO, FUD and HODLFOMO is the fear of missing out that pushes you to buy without a plan, and FUD is news that spreads fear. HODL means holding for the long run...VolatilityHow strongly and quickly price swings. High volatility means bigger jumps both ways, and so more risk.Market cycleRecurring market phases: accumulation, rise, peak, decline and bottom. In crypto they are often linked to the halving, but the exact timing does...DrawdownHow far the account has fallen from its peak, usually in percent. After a 50 % drawdown you need a 100 % gain just to get back to where you were.Bull and bear marketA bull market is a long stretch, months at least, when prices mostly rise and people are optimistic. A bear market is the opposite: prices fall...Position: long and shortA position is an open trade: a long profits when price rises, a short when price falls. Shorts are usually opened with futures.