Strategy Testing 01｜OKX and AICoin Research Institute: Dollar-Cost Averaging Strategy

OKX, in collaboration with the premium data platform AICoin, has launched a series of classic strategy studies aimed at helping users better understand and learn different strategies through core dimensions such as data testing and strategy characteristics, thereby avoiding blind usage.

The dollar-cost averaging (DCA) strategy is one of the most classic strategies in strategic trading. In simple terms, strategic trading is a tool that helps users conduct automated trading, which has advantages over manual trading such as reducing risk and simplifying operations. The DCA strategy is a method of periodic and fixed-amount trading that diversifies the risk of a one-time market investment and smooths trading costs. By consistently adhering to fixed-amount trading over the long term, it aims to achieve profit through the effect of compound interest over time.

The first issue introduces the DCA strategy, using two major data models to conduct a practical test of the BTC DCA strategy:

1) Analyze the returns generated by DCA under different halving cycles since the birth of Bitcoin.

2) Analyze the returns generated by annual DCA over the past four years.

This data test will adopt a time-point-based DCA strategy model, with the DCA standard being: investing 0.1 BTC every Monday at 0:00 (UTC+8). Before each investment, the profit from the last investment will be settled, leaving the total principal invested previously.

In summary, the DCA strategy states: for long-term holders of BTC, the market will reflect long-term value.

Advantages and Disadvantages Comparison

Overall, the DCA strategy is a long-term trading strategy suitable for ordinary traders, effectively smoothing market fluctuations and cultivating disciplined trading habits, but it also requires traders to possess a certain level of patience and long-term vision.

Model One

Analyze the returns generated by DCA under different halving cycles since the birth of Bitcoin

Note: Due to the settings of the backtesting system, the trading amount includes the total costs of buying and selling BTC. For example, if 0.1 BTC is bought on the first DCA day, and on the second DCA day, 0.1 BTC is sold while simultaneously buying 0.2 BTC, and so on.

Model Two

Analyze the returns generated by annual DCA from the past four years

Note: Due to the settings of the backtesting system, the trading amount includes the total costs of buying and selling BTC. For example, if 0.1 BTC is bought on the first DCA day, and on the second DCA day, 0.1 BTC is sold while simultaneously buying 0.2 BTC, and so on.

Analysis and Summary

The DCA strategy in Model One is based on the Bitcoin industry cycle, spanning four industry cycles from the initial rewards of Bitcoin to the third halving. The number of DCA occurrences, trading amounts, and returns vary across each cycle. Model One shows that over time, as Bitcoin prices rise, DCA returns significantly increase, capturing greater returns. For instance, the return rate in the second cycle is 9.74%, while in the third cycle, it jumps to 170.03%. Model One is suitable for long-term traders, gradually accumulating Bitcoin through DCA over a longer time span, smoothing market fluctuations, and ultimately achieving significant long-term returns.

Although the win rate fluctuates across cycles, it generally remains above 50%, indicating high stability and risk resistance. Despite the high return rates, this is mainly due to the significant price volatility of Bitcoin, which affects stability; therefore, attention must be paid to the impact of market fluctuations on returns.

The DCA strategy in Model Two is based on annual analysis, examining the annual DCA returns of Bitcoin from 2020 to 2023. The number of DCA occurrences each year is fixed at 52, maintaining a total holding of around 5.2 BTC. The return rates of annual DCA fluctuate significantly; for example, the return rate in 2021 is 21.47%, while in 2022, it shows a negative return of -48.75%. This indicates that the annual DCA strategy is significantly affected by short-term market fluctuations.

Model Two highlights that even in the short term (such as one year), the DCA strategy may face the risk of negative returns, making it suitable for traders who observe market performance over shorter periods. Through annual DCA, traders can quickly assess market conditions and adjust their trading strategies. Despite the significant return fluctuations, the win rate remains at 50%. Overall, while there have been positive returns in recent years, the return rates are lower than those in Model One, and the short-term win rates and return rates are less stable than long-term strategies.

From the perspective of returns and risks, although Model One has extremely high return rates in some cycles, it must bear the significant volatility risk of Bitcoin, meaning high returns come with high risks. Model Two shows that the annual DCA strategy has high volatility in the short term, making it unsuitable for conservative traders seeking stable returns, as short-term strategies are filled with uncertainties.

In summary, the DCA strategy is more suitable for long-term trading and for traders who can withstand market fluctuations and have a long-term trading vision. Among the two models, Model One's long-cycle DCA strategy is more appropriate, as it demonstrates higher win rates and return rates across multiple cycles. Overall, while the DCA strategy is relatively robust, different models of the DCA strategy can produce significant differences in both risk and returns, and users need to further differentiate when employing the DCA strategy.

OKX & AICoin DCA Strategy

The DCA strategy is one of the most straightforward trading strategies. OKX's DCA strategy simplifies the implementation of the dollar-cost averaging (DCA) strategy, supporting the purchase of over 20 different crypto assets. Users can use their USDT balance to invest in a single crypto asset at selected time intervals or, based on their preferred trading combinations, invest in multiple crypto assets simultaneously in different proportions to average their purchase prices.

Currently, OKX's DCA strategy has also added new features such as pause and restart, switching trading assets, setting price ranges for DCA assets (allowing users to set a price range for each DCA asset, executing DCA operations only within that range), editing parameters, and viewing history, helping users conduct DCA strategy trading more conveniently and efficiently.

How to access OKX's strategic trading? Users can enter the "Strategy Trading" section of the trading area through the OKX APP or official website, then click on the strategy square or create a strategy to start the experience. In addition to creating strategies themselves, the strategy square also offers "Quality Strategies" and "Quality Strategies from Strategy Leaders," allowing users to copy strategies or follow them.

OKX's strategic trading has multiple core advantages, including ease of operation, low fees, and security guarantees.

In terms of operation, OKX provides intelligent parameters to help users set trading parameters more scientifically; it also offers graphic and video tutorials to help users quickly get started and master the platform. Regarding fees, OKX has comprehensively upgraded its fee rate system, significantly reducing trading fees for users. In terms of security, OKX has a security team composed of top global experts, providing bank-level security protection.

Currently, OKX's strategic trading offers convenient and diverse strategy options, mainly including:

• Grid Strategies: Spot Grid, Contract Grid, Infinite Grid
• Average Cost: Contract Martingale (Contract DCA), Spot Martingale (Spot DCA), DCA Strategy
• Combination Arbitrage: Coin Holding Treasure, Bottom Buying Treasure, Top Escaping Treasure, Arbitrage Orders
• Large Order Splitting: Iceberg Strategy, Time-Weighted Strategy
• Signal Trading: Signal Strategy

Among these, grid strategies and coin holding treasures for periodic purchases are the simplest and easiest to use. Meanwhile, arbitrage orders, iceberg strategies, and time-weighted strategies are more suitable for high-net-worth users, as using these strategies involves facing more complex risk situations.

Additionally, AICoin also provides users with various strategy trading options, allowing them to understand the current market more quickly and intuitively. Users can find the "Custom Indicators/Backtesting/Live Trading" option in the "Market" section of the left sidebar of AICoin products. By clicking here and searching for "DCA" in the "Community Indicators," users can find the code for the DCA strategy.

Disclaimer

This article is for reference only and represents the author's views, not the position of OKX. This article does not intend to provide (i) trading advice or recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/trading professionals regarding your specific circumstances. You are solely responsible for understanding and complying with applicable local laws and regulations.