Trading Diary 2 -Air Crash: My Wake-Up Call for DCA

“DCA acts as the seatbelt during a market cycle, take-off, navigation and landing. You DCA buy the way up, sell the way down, and enjoy the turbulence in between, navigating safely through the cycle.”

Beneath the expanse of Russia’s vast territory, I found myself drifting in and out of sleep on a flight that seemed as mundane as any other. Suddenly, a stress call from the captain woke me up: we were about to make an emergency landing. At that moment, the aircraft began a precipitous dive. And I, a long-term fan of Air Crash Investigation, felt a premonition of the fate that might soon be ours. With every ounce of strength, I secured my own seatbelt, clinging to the hope that this simple act might increase the scales of survival. I was scared but ready for whatever was coming. The only thing I regretted was that no one knew where my private keys were.

Then I saw a runway, a glimmer of hope rose, but it was fleeting. The plane failed to touch down, ascending once more. My life was in suspense again.

This was a dream. Continuing the plot, at some point, all passengers were miraculously on the ground. But we were expected to reboard the plane and finish the landing. Other passengers looked nonchalant, but I resolved to never board that plane again and walk to the destination airport. No more leaving it up to fate or a plane — I was making my own way there, step by step.

This was the first time I ever dreamt about myself in an imminent air crash. Dreams are often a reflection of our subconscious minds, revealing feelings that we don’t consciously acknowledge in our waking life. Chatgpt interpreted that my dream reflects a journey through personal challenges and a search for control amidst life’s uncertainties, illustrated by facing crises and taking safety measures. It suggests a need for readiness and managing difficulties, alongside a desire for stability and control over one’s path in the face of uncertainty and anxiety about the future.

The interpretation speaks some truth. I acknowledge the sense of no control, which is a newly acquired acceptance regarding life situations. In this Trading Diary, I will focus on talking about my trading life.

I didn’t expect BTC to ascend so rapidly, breaking 50k$ in February. Compared to the last cycle, it now feels equivalent to the mid-2020 to early 2021, the early phase of a bull market. I reached this conclusion by looking at the MoM (Month-on-Month) price percentage change. The BTC bull market appears to be accelerating, considering the macro factors of Bitcoin ETF approval and the anticipation of Havling in April 2024.

I’ve been manually dollar-cost averaging (DCA) into BTC every month for the past year. For those who don’t know what DCA is, it’s the simplest yet proven to be the most successful investment strategy over the very long term. DCA means you buy or sell an asset for a fixed amount at a certain frequency. Yet, when the bull market arrives, I still don’t have enough of it. The urgency feels even greater for ETH. I made some lump-sum buy of ETH during a retracement, but quickly used it up chasing shitcoins, LPs and of course, paying gas fees. ETH is a come-and-go currency: you buy it, spend it, and you need more. In anticipation of the upcoming intense bull market, I’ve shifted some of my stablecoins into small- mid cap altcoins, hoping them to make more X than BTC and ETH. My portfolio sees an increasing proportion of alt and meme coins, reducing the foundational share of BTC and ETH. In conclusion, I’m not prepared for the bull market.

For weeks, I have been contemplating steadily stacking BTC and ETH, considering we are still early in the bull market. There could still be a time window before they peak. Contemplating is one thing; taking action is another. I wait for a retracement, but the reality is that the more I wait, the more they grow. Many people think and behave like me, making a real show of the bull market tragedy. The flight has taken off, and I can only watch as it continues to ascend without me on board.

Unlike boarding a flight for which we know the date and time, timing the market is an ability beyond every investor. You can be a guru in technical analysis, a macro expert, someone with one-off insider news, or even Blackrock — all these combined are not enough to guarantee a high win rate, especially with BTC and ETH, which are decentralized enough to have so many multiple types of players in the game. I have given up hope of finding a good entry (or re-entry) point in the uptrend.

The day after the air crash dream, I activated automatic daily DCA for BTC and ETH. Even if from now until the next peak is not considered “long term”, DCA still gives me a way to engage with the market healthily and a sense of “control” when facing the uncertainties of price movements.

DCA Backtesting

I made a simulation using data from the last cycle up to today. I chose the period from January 1, 2020, to February 17, 2024, marking the start of the last bull market to the present, thus covering a bull-bear-early bull market period. I didn’t include earlier data, as it would make the results overly tempting. The DCA plan I simulated is what a typical newbie retail investor might easily follow: investing $50 per day, or $1500 per month, into BTC and ETH. See the results:

In this period covering four years, the outcomes for both BTC (+100%) and ETH (+200%) are satisfying. Over a long enough timespan, daily or monthly DCA makes little difference. For reference, the S&P 500 provided a ROI of approximately 14% in the same period.

Let’s make another simulation for someone late to the party. We’ll shorten the period to Jan 2021 — Feb 2024, noting that early 2021 was 10 months away from the climax.

From the climax year of the last bull market until now, DCA has still yielded a decent ROI. The average buy price is enviable, BTC at $30k and ETH $1900.

Now, let’s create an even more stringent situation. DCA from January 2021 to the All-Time-High month, November 2021, covering only 11 months’ time, during the full swing of the bull market. See the result:

In the last bull peak year, ETH made a brilliant return, BTC was much less appealing.

Today we are again in the early phase of a potential bull run. How does the timing look?

I firmly believe now is a good time to DCA into BTC and ETH. But the fundamental question we should ask is, what do BTC and ETH represent for me? For me, they are the base of a cake, the foundation. Without them, a cake is not a cake. Altcoins are the layers, mix-ins and toppings, all are supported by the Base.

And as has usually happened in the past, BTC was the first one to rise and then lifted the altcoins. To ride every wave of climax, we cannot skip BTC. Especially now that Tradfis have legitimate reasons and ways to get into spot BTC, the liquidity support for BTC has become more consistent. Ride the wave, don’t fight against it.

Is now the right time for DCA into small-mid caps? If they will experience a surge, they will yield higher returns than BTC and ETH. Consider the performance of popular altcoins during the last bull market compared to BTC and ETH. The key factor here is selecting altcoins that have the potential to pump.

Why DCA over other strategies?

DCA smooths out the volatility of entry prices or take-profits of an asset. In situations where it seems there’s no ideal time to buy, anytime becomes a good time. When you have a hard time finding an entry point, DCA is the no-brainer call to action.

The memory of fastening my seatbelt to a tight extreme in my air crash dream remained vivid after waking. That seatbelt, as trivial as it seemed, represented my only control over survival. Putting into the perspective of the market, DCA acts as the seatbelt during a market cycle, take-off, navigation and landing. You DCA buy the way up, sell the way down, and enjoy the turbulence in between, navigating safely through the cycle.

Emotionless and Autopilot

In my previous diary, I discussed the battle between emotion and rational thought. In an intense bull run, Fear-Of-Missing-Out and Fear-Of-Buying-High commonly arise. To counteract these emotional responses, automatic DCA serves as a detached, Zen-like approach. The key lies in its automatic nature — it operates devoid of emotion, executing trades with military-style discipline, much like engaging an airplane’s autopilot mode. Autopilot reduces the workload of the pilots, DCA frees you from constant decision-making and emotional turbulence in building up a long-term portfolio.

I’ve been manually DCAing for over a year. During the calm and boring bear market, I could execute my disciplined monthly DCA plan without much disturbance. There were times when I was sick, travelling, or down in mood… the DCA occurrences got delayed, but I managed to make up for it. However, as the market started to rebound and accelerate, my actions began to deviate from the military discipline, and I skipped a few months in a row. “I’d wait for it to drop” became my unspoken line, only to find that the price kept rising month after month. When the gap between my position and my desired asset widens, it creates a painful psychological barrier that discourages every buy order. Many people say Addios to their desired assets in this situation, never get on board, and live with regret for the rest of their lives. Automatic DCA is the remedy to turn things around. You only have to make the choice once and leave the rest to autopilot.

After activating my daily DCA plans, the ups and downs of candlesticks feel distant. Between me and my ETH and BTC is just one trade away, day by day. I could never manually execute daily buy at today’s (already high) price levels; my trading resolve isn’t strong enough to endure the decision-making process every other day. But the bot can handle this effortlessly. The most enjoyable email I receive each day is the confirmation of these trades.

Unrelated reflective thoughts

My father established a rule within our family that he, my mother, and I should never travel on the same flight. I respect this decision. It’s his way of exerting control to minimize the risk of a whole family’s fatality, even if it might seem overly cautious to others.

There’s something about watching air crash investigations that captivates me, feeding my curiosity about the aviation industry’s intricacies. Gaining this understanding offers me a semblance of “control” and “safety” each time I board a plane. I’m unnerved by the complete unknown. Being in any situation, just a sliver of knowledge, even if only on the surface, brings me a bit of comfort.

We all seek some form of control, whether it’s through actions with meaningful impacts (my father’s travel rule) or through habits that offer a sense of security without any practical effects (my fascination with aviation documentaries). Yet, the amount of control we truly have is so limited. Coming to terms with this reality is, perhaps, the only way to fully embrace life.