Buying over time. Understanding what you paid.
Buying the same amount at different prices changes how many units you own. Follow five scheduled purchases and a partial sale on a fictional price chart to understand DCA and average cost.
Updated 14 Nov 2026 · Original educational material · Hypothetical examples, not live market data
What is DCA?
Dollar-cost averaging (DCA) is investing a fixed amount at regular intervals regardless of market price. Imagine buying $200 every two weeks. If the asset costs $100, you acquire two units. At $60, the same money buys about 3.333333 units.
Regular purchases replace one large timing decision with a schedule. They do not tell you whether the asset is worth buying or guarantee future profits. Buying extra only when the price falls is often called averaging down, a related but different timing rule.
Five scheduled buys on a candlestick chart.
Our completely fictional Asset A drops and recovers over eleven invented weeks. We buy exactly $200 at the closing price in Weeks 1, 3, 5, 7 and 9. At the Week 11 close of $95, we sell four units.
All open, high, low and close values were created for this educational example. They are not market data or a backtest; the chart does not suggest that a similar recovery will occur.
Swipe sideways to see the full chart →
The average of prices is not your average cost.
The arithmetic mean of the five quotes ($100, $80, $60, $70, $90) is $80. But $200 buys more units at the lower quotes. This produces an actual weighted cost basis of about $77.44 per unit.
| Week | Price | Invested | Units | Running average |
|---|---|---|---|---|
| 1 | $100 | $200 | 2.000000 | $100.00 |
| 3 | $80 | $200 | 2.500000 | $88.89 |
| 5 | $60 | $200 | 3.333333 | $76.60 |
| 7 | $70 | $200 | 2.857143 | $74.83 |
| 9 | $90 | $200 | 2.222222 | $77.44 |
| Total | — | $1,000 | 12.912698 | $77.44 |
After four purchases, the running average is about $74.83. Buying again at $90 raises the average to $77.44. Buying above the existing basis tends to raise it; buying below tends to lower it. A lower basis does not make the underlying asset safer.
Acquisition fees paid in dollars generally increase economic purchase cost, while fees deducted in the asset reduce units received. Your platform or jurisdiction may apply different reporting conventions.
Could the whole holding be up while the first purchase is down?
At $95, the entire holding has a hypothetical value of $1,226.71 and an unrealized gain of +$226.71, before costs and tax. The first $100 purchase alone would be down, but the later lower-priced purchases change the aggregate result. This path is deliberately illustrative.
What does a partial sale change?
Selling four units at $95 produces $380. Using weighted-average cost accounting, the cost assigned to those units is $309.77, making realized profit $70.23 before sales costs or tax.
| Measure | Value |
|---|---|
| Gross sale proceeds | $380.00 |
| Cost allocated to 4 sold units | $309.77 |
| Realized profit | +$70.23 |
| Remaining units | 8.912698 |
| Remaining total basis | $690.23 |
| Remaining basis per unit | $77.44 |
| Remaining value at $95 | $846.71 |
| Remaining unrealized gain | +$156.48 |
The weighted-average cost per remaining unit stays the same. Under FIFO, however, the earliest four units would be 2 acquired at $100 and 2 at $80, costing $360; that sale shows only $20 realized profit. The total economic gain at the same market valuation remains the same, but realized versus unrealized accounting differs. Tax methods depend on jurisdiction.
Will DCA outperform investing all at once?
Not necessarily. If prices climb steadily from the beginning, buying everything early can produce more units. If prices fall before later recovery, staggered contributions can lower the average entry. No schedule can guarantee the better path in advance.
Distinguish investing a lump sum that is already available from putting newly earned income to work each payday. Cash held back may earn a different return. DCA helps structure timing; it cannot remove market risk or establish whether an asset is a good investment.
Three common mistakes.
“My average is falling, so I'm safer.”
Additional purchases increase the capital exposed. The asset could continue to lose value.
“DCA always beats lump sum.”
When prices rise quickly, investing earlier can outperform a scheduled entry.
“Average cost is my exact break-even.”
Selling fees, spreads, slippage and taxes can change the exit price needed to break even.
Frequently asked questions.
Is DCA the same as buying every dip?
No. Classic DCA follows fixed dates and amounts. Dip buying reacts to price changes and can alter the intended exposure.
Why isn't the cost basis the $80 simple average?
Each $200 buys a different unit quantity. Total cost divided by total acquired units correctly weights the five purchases.
Does selling units change the average cost?
Not under the weighted-average cost method here. FIFO and other permitted inventory or tax accounting methods produce different cost allocations.
Should buying fees be included?
For an economic cost-basis calculation, purchase fees matter; whether they increase cash basis or reduce received units depends on how charged. Actual tax reporting is jurisdiction-specific.
Is the linked DCA Projection based on historical market prices?
No. It models assumed returns and hypothetical contributions. The candles on this page are also invented rather than historical data.