Everybody talks about Dollar-cost average but… when and how do you apply it? when your stock is down 5%, 10%, 0.5%? Do you buy double the original price? small amounts? I would appreciate it if you can share your strategy.
I couldn’t sum it up any easier, so check the link below:
Hope that helps
Thanks, but I am not asking about what is dollar-cost average… I am asking about your personal strategy. Do you re-buy when a stock is under 5%, 10%, every week regarding the cost, etc…
The key is regular intervals. DCA is just a repetitive buying schedule, hence the link.
Otherwise it’s a form of timing the market - as you may be waiting a while for a drop each time you want to buy more.
Just depends what you want to do. Funnily enough, the outcomes are all very similar.
IF you can stomach it, lump sum investing can outperform. DCA is just easier for many as it’s less mentally daunting.
DCA vs lump sum investing vs value averaging etc. Just pick on and stick with it.
DCA by itself is just a regular buying pattern - the % doesn’t matter, as this just depends how much you want to contribute yearly. IF you are trying to time the market, then you will be more akin to value averaging.
Lump sum has been shown to be the best performer historically, as it gives your money the most time in the market as possible. So investing the on payday works better than holding it and investing frequently. It also works better because it prevents you from spending that money and hence investing less
As @adm has mentioned it’s just regular intervals like setting up a pie and once a month depositing £x into it on a set day to buy.
That way you take any emotion out, you setup and forget. And come back in 5, 10, 20 years to a nice pot of money.
What you are mentioning is something different, which is looking for dips and actively buying (and selling) at specific points.
It’s more hands on but you’ll potentially get a much better return. It’s a case of waiting for good entries or top ups when it’s over sold and the price is below the moving average. It relies on having available funds and patience, and keeping focus on news and SP action. You can also look at points where it’s become over bought and it’s way above the moving average and sell expecting a pullback to a lower point.
Sorry another link - but if here is something similar to what you were after.
It’s value averaging - rather than dollar cost averaging.
Just a note though - DCA outperforms and is less hassle.
I started off trying to time the market and putting lumps into different stocks when it was “down”.
That does present different issues because a good company will typically rise over time, in the short term and long term. Therefore the mental battle comes in investing in something that is “green” as its human nature not too think you’re getting the best value.
This will then lead to lose of opportunities in my opinion as the dip might not come for some time and you’ve missed a whole lot of green.
I now DCA due to the above.
I think the nice thing about deposit and forget. It’s no effort and no emotions. You are putting faith in that company being around in 5,10yrs+ and being even stronger.
For a LTH it works fine.
If you prefer to swing trade then it’s not effective putting those into say a pie and regular deposits.
I personally like to catch as many low points and sell on the highs.
There’s plenty of cases where I’ve exited and moved on when I should have stuck for a long hold.
50,000 shares of GGP back when it was 7p this year, I played it on and off up until 17p. If I had just bought more every payday it would have been a very nice result this right now.
Hindsight is a wonderful thing.
Taking AAPL as a quick example you can easily see the points where it’s below average and over sold and left the average and over bought. So you could play those runs heavily, or just have bought X amount every month just accumulating shares. At one point in future you can bet it’ll be hitting that red 200 EMA again.
Biggest things I’ve learnt is:
1 have available funds
2 don’t go in too heavy
Here’s my recent favourite where DCA doesn’t benefit as much. Lithium play the new gold.
Easy swings and decent long term (end 2021 it should start kicking off). Whilst I could put it in a Lithium pie and keep feeding in funds it’s been so much reward.
Picked each of these runs. My only regret not chucking in more 6 into 16. An easy grand.
Now in again at 10.16
I was actually expecting it to pull back under 10 to add more.
If it goes high enough I need to actually show some strength a leave a few shares ticking to see what it does.
Thank. I appreciate your answer, very informative and useful.
Thanks for your answer. I will mainly try to buy in the dips. But I like the idea of DCA so I will also apply that strategy. How many stocks do people normally-averge hold in their portfolio?
Thanks for this. Very interesting to keep learning
Thanks for your response. Why do you think DCA doesn’t work if you are swinging?
Let’s say I buy X stocks this week. Then the week after a big drop happens but I keep buying. On week 3 a massive ride up so I sell. Could we say I did DCA during swinging and worked?
Well there’s no reason you can’t do both. Buy at constant intervals and also top up at large dips.
The reason it doesn’t work for swings is you cant blindly buy at intervals and necessarily win, it’s all about getting the entry and exit.
With DCA you could be very lucky and catch dips but it’ll be usually buying all over the price action including all the spikes.
On a long term strategy it doesn’t matter as much if it did but swings are usually days to weeks, sometimes I’ll play a bull run on a stock I think is being pumped but still that’s only a month or two (unless you get caught holding the bag)
DCA you’ll do say 12 deposits over the year.
If you swing trade a stock you’ll be watching the action like a hawk.
It’s a different set of skills to swing, it’s higher risk in essentially timing the market. It requires waiting for signals in chart analysis combined with extensive DD on upcoming news and plans. You’ll also want to be following the stock action closely to see how it acts, also looking at key support and resistance points you need for it to break. You also need to watch when the run is ending, and plan an exit and stick to it.
Easier swings are usually after earnings dips or IPOs, or RNS or very bad news which isn’t terminal to the stock and will bounce.
What I’ve found it definitely helps to swing trades you don’t mind if you cock up and get caught. Also that on the dump let it fully bleed out before diving back in. And avoid the FOMO and temptation to jump in chasing, if you see a stock being pumped by retail on social it’s usually a good sign to exit.
What phildawson mentioned is spot on.
Another way to get the best of both, is split up your money instead of say by 12 (for the 12 months) but by 10, leaving you with 2 months worth of cash as a reserve for major dips.
DCA your allocation every month (10 months worth of money spread over 12 months) and when prices seem a steal, drop in the extra 2 months worth of money. At the end of the day, the gains will probably be marginal, but it may help settle your nerves about missing the really good dips.