DCA vs Buy the Dip – an analysis

Hi all, I've read many posts recommending various strategies for buying over the past year or so, and an overwhelming number of them involve DCA (Dollar cost averaging) or "buying the dip". So I decided to look at historical data for Bitcoin over the previous 5 years (from July 18 2016 until today) to see how each strategy compared to each other.

What is DCA?

Dllar cost averaging is where you simply invest a regular amount into an asset over time using equal payments. For example $100 per week. The theory behind it is that you automatically buy when an asset is cheap, which more than makes up for the buying when the asset is expensive.

What is buying the dip?

Buying the dip involves saving your money until the market experiences a significant downturn. In crypto land, this usually involves waiting until a crash and then buying up an asset at a lower price in the hopes that it will eventually return to equilibrium.

Method

Using historical price data, I pitted a standard dollar cost averaging strategy against two 'buy the dip' strategies.

1) DCA strategy:

I 'bought' $100 worth of bitcoin per week for 5 years.

Results:

Total spent: $26,600

Bitcoin bought: 9.0742

Total value (as of 18 July 2021): $286,907.11

% returns: +1079%

2) Buy the dip at 10%

$100 saved and put in a pot each week. When the price dropped 10% below the 7 day moving average (the average price for the past 7 days) I used all the saved money to buy Bitcoin. (using historical data, this could be calculated by looking at whether the 'low' price for the day was more than 10% lower than the MA for the past 7 days and then 'buying' bitcoin at a price of the MA minus 10%)

Results:

Total spent: $26,300 (with $300 left over)

Dips bought: 79

Total BTC bought: 7.9769

Total value (as of 18 July 2021): $252,514.74 (including leftover $)

% returns: +949%

3) Buy the dip at 20%

$100 saved and put in a pot each week. When the price dropped 20% below the 7 day moving average (the average price for the past 7 days) I used all the saved money to buy Bitcoin.

Total spent: $26,200 (with $400 left over)

Dips bought: 23

Total BTC bought: 9.0340

Total value (as of 18 July 2021): $286,036.14 (including leftover $)

% returns: +1075%

Conclusion:

While this is only a couple of many possible Buy The Dip strategies, so far it doesn't seem that saving up and buying after a crash offers any significan benefit over just investing regularly over a period of time, in fact returns were weaker for both dip buying strategies. One reason for this, is it's impossible to tell how big or small a dip would be, so buying will often be too early at 10% when the price drops further, or a buying opportunity missed if you wait for it to dip 20%. Nevertheless there is merit to both strategies, and I will challenge anyone on the forum to find a Buy The Dip strategy that offers significantly better returns than DCA over a long time period.

Further notes:

– I will post the link to the spreadsheet data in the comments. This post was ghosted before so no one could see it and I think the reason was the links.

– I decided to use the 7 day moving average as it would give a reasonable price to compare the dip to, 7 days means that no matter what day in the cycle you are, your data will be 5 weekdays and 2 weekend days. Using single day data proved to be a bad idea because a 'dip' could just be a dump following a 1 day pump, we wanted an actual dip compared to an expected price.

– Historical price data was sourced from investing dot com website.