Get started

Dollarcostaverage

When to enter? Does it even matter?With value investing everyone knows: Buy when there is blood in the street, when a good company has a P/E ratio of maybe under 10. But with currencies, other than the advice "50% to 61.8% fib" and a whole lot of troll "buy every bottom sell every top with the magic indicator or magic drawing on the chart" there is no common knowledge. We can look at this recent example where the price dropped, went sideways, and then dropped hard. We could keep looking at winning examples when selling or buying at the top of these bands or ~61.8% retracement The only way to know how good they are is by backtesting a large number and writing down the stats. But are there other ways to enter? Rather than write an entire novel with chapters I will simply go through a list of screenshots Some say it doesn't matter where you enter... It does and it doesn't, depends what you mean by that. First Second Third Fourth Fifth Sixth Seventh Eight Ninth Final This is all simplified to make my point, or points I guess. So you can't just say "entry doesn't matter". People that tried trading, failed, got into "holy grail" safe good boy passive S&P in the last 70 years averaged bla bla bla wake me up, they're the ones saying this. Oh so it does not matter if they buy a stock at a P/E of 8 or 280? Of course it matters!!! Entry matters! BUT where you enter EXACTLY does not matter. I'm not sure how to put it, but go through the examples and you see what I mean. Sometimes it matters, but even if you miss it there are other ones, and these entries are going to be at least a small area "of opportunity" anyway. Well it's more complicated than a "yes" or "no". There are plenty of ifs. And plenty of ways to approach this. Look, Warren Buffett bought too early or later and sold too early all the time. And? Most famous investor in the world. Is there an optimal super entry that gives better results than anything else? Statistically there has to be one, so yes. If we spend ages making stats and we find it do we know it will remain this particular one? Probably not... Can we find it without it just being hindsight bias? Probably not... Would having the mighty perfect entry (I didn't say find every exact bottom, that's not actually possible) make a big difference to our results? Lol you might go from 20% returns to 20.5%. Probably even less. The endless search for the holy entry newbs seem to all be obsessed with... Fool game. It's same as with video games, Starcraft, Lol, Dota, W3. Or chess... Newbs go "I will farm for 40 minutes full eco ignore military, full Nasus q, full catch his pawns, I'll be a monster and they'll see", 15 minutes later "Ok tough guy just wait late game you will feel sorry", 5 minutes later "Victory!" or "GG easy noob", 1 minute later "Report Nasus useless afk trash ebay account". Haha I laugh every time. They really make all the same type of newbie "late game" and "magnet logic" mistakes, 80% of retail FX goes into "day trading" because "hey I figured out I'll get more trades and therefore grow my account faster duh", "Hey you can't lose if you don't sell", "Hey I have this brilliant martingale average down", "Hey wassup wassup wassup I found a trick", "hey if I go for lots and lots of little wins, take my profit fast I'll win small but very often and scale", "hey if I run conservative robots that only return 1% but I run 500 of them...", "hey if I add all these conditions". What a circus. Miss the good old days. Can't humiliate noobs with trading their account is secret, they open their mouths when they get lucky then vanish, and it's not a 1 v 1 or 3 v 3 or whatever it's a 1 v whole market. Even if we cooperate and share ideas it's still a 10 v 10 million or idk. There is however the "bull vs bear" thing. But the Bitcoin bulls from 2018 from 15k to 3k almost all left (losers) and the few ones that stayed pretend they won (or they're too dumb to figure out they were on the wrong side of the market). S&P 500 bear tears are pretty delicious at the moment by the way. You both can say entry matters and entry doesn't matter and be mostly right. Don't waste too much time trying to perfect it. Calculating max risk, probabilities of drawdown, when to exit, when to hold, when to add, how to trail, correlations, those are at least as important as the entry. What I can say is entering very early, far from the stop, out of fear of missing out is bad, and entering very late for a giant risk to reward is greedy and bad. Around 50% retracement is often a good compromise. Stats will help choosing areas and price action (stats such as: over the past 10 years on breakouts would it work out to enter in the big red candle? How about on the previous low? How about 61% fib when the price reacts near the previous low? Etc). Entry doesn't go alone, for example when you average in a sideways within a trend well you'll want to move your stop each time you add according to your average price. That's a whole other subject. Coming up with a whole strategy even simple and even once you sort of understand the markets and have the basics of price action is still clearly going to take a couple hundred hours at best... Just writing this took me a little over 2 hours, and I rushed it, and I obviously don't start from scratch I researched all of this. Just writing an intro like this about entries and stops and targets and trends and pullbacks and breakouts and timeframes and risk and all the other stuff, not even with stats, that alone probably would take 100 hours by itself. How long it takes to convince yourself to hold winners and cut losers and quit a gambler mentality however = infinite time, just quit now you'll save time (thousands of hours!), investing is not for you. Oh and finally, an entry "signal" is a joke. You don't go from 0 to 100 "wow this would be a great buy because of this entry", that's beyond ridiculous. You are supposed to be watching something before getting in and waiting on certain conditions to enter (pullback after breakout), never heard of anyone that had "entry signals". When George Soros went short the GBP it was "because of the entry" but he had a whole theory. The "entry" wasn't a magical signal it's simply he was close to the floor, well ceiling, and had a big RR with big odds! And he explains how "I was selling weeks before", he actually "dollar cost averaged" as I explained. He didn't wait for a certain magical point, he wasn't greedy waiting for a 1 pip stop.
Education
by MrRenev
9
A perfect explanation for BitcoinHello Everyone, Bitcoin has seen pain these last few weeks. There are traders that think bitcoin is still in a bull market and traders that have turned to the bear side. Here are my thoughts with analysis: Bitcoin has done a perfect wyckoff distribution that resulted in a massive head and shoulders pattern forming then being confirmed. Hence why price dropped 50% rather quickly. Bitcoin seems to be in a state of "limbo" trading between $30,000 and $40,000 for the past few weeks. What does this mean? In my opinion, I believe it is setting up for the next leg down. This price action looks perfect for consolidation for another move down. It makes sense as bitcoin just saw a head and shoulders on the daily confirmed with very bearish price action. Here's the question everyone is asking: is Bitcoin in a bear market? The answer: Yes. Technically Bitcoin is in a bear market as it is below major bullish indicators such as the Daily 200 Moving average, the 21 Exponential Moving average on the Weekly, below the transition point on daily MACD, etc. I personally believe a lot of traders are in denial and that bitcoin did see a parabolic advance over the last year. I couldn't tell you how long this bear market will last but I imagine a few months to allow things to cool down and get people out of all of these shit coins. Here is my technical analysis: 1. Close rejection of the 200 MA Daily with rejection of previous support. - There is a giant descending triangle that bitcoin broke down from. It rejected previous support. 2. Price Action is bearish on the way down and on the way up for retesting major support. - Fakeout city. 3. Clear Wyckoff distribution on the Daily/Weekly timeframes. - This indicates the market is looking for downside sell off. 4. MACD is heavily bearish with waning buying momentum. - This indicates the market is not yet ready to turn back into major buying. 5. RSI bounced perfectly off diagonal resistance. - I am expecting another move down in the next 1-3 days. 6. The "Breakout" of the symmetrical triangle looks fake. Volume is not validating and it was immediately rejected by previous major support levels. In my opinion, either short or DCA. Buy a small amount each week or each dip and accumulate on the way down. I do not think $64,000 is the max price for bitcoin. I have no idea where the bottom is except a guess around $17,500. DCAing is the perfect way to protect your investment and achieving gains. It has been the #1 trading strategy all throughout bitcoin's lifetime. Hopefully this helps some of you understand this market and protect your investments. As always, be patient, use risk management, and good luck trading!
BITSTAMP:BTCUSDShort
by RomanXIV
4
$LINK: Pitchfork call was right... so far.Just checking in on $LINK after that wicked dump. We've seen it before and if we copy that bars pattern and compare it to current PA? We see that the test and bounce is usually followed by some consolidation before it's able to get enough momentum to fight back up above that median. If it does follow this fractal perfectly? (which it won't) The full parabola would align with an end of summer pump as crypto did in years past too. Generally end of year has been when things get absolutely nuts. We'll see if that happens! - On the bounce and coming retest, i'd love to see that previous ATH of 19.50 hold? - $LINK is and has always been extremely bullish fundamentally. We're buying more spot here and DCA'ing into growing our position at these prices for sure. - Called the pitchfork bounce last week, we could honestly even see 10 dollars and still be maintaining our bullish macro structure. Again... Everyone that I talk to about $LINK I strongly recommend buying small amounts consistently over time. Timing the market tops and bottoms is for fools. I firmly believe in the future of $LINK and the #Chainlink network. Everything in the world that uses smart contracts will be using and relying on this technology and everyone has to pay to participate. Corporations need to Buy, Hold, and Spend $LINK. Us small investors will benefit from this demand greatly.
BINANCE:LINKUSDLong
by its_maxbro
7
BTC Long Term PerspectiveThe price of BTC has shown a lot of weakness after a week long fud storm. The ema ribbon is in a complete downtrend as the moving averages begin to diverge and expand. Moving forward, the lower 30k level has shown great support in buy volume which will limit the extensive sell pressure. The normalized ATR and %R momentum indicator have also shown the same reading. When this occurs it indicates that price is nearing a bottom since sell pressure is getting exhausted. What I expect is that BTC price will range in this 30k area for the coming days so a DCA strategy should be implemented!
COINBASE:BTCUSD
by drozizi
2000 SATS to the dollar - an exciting bargain!You can now buy almost 2000 sats (satoshis), the smallest denomination of $BTC for 1$. That's a hell of a deal, and if you ask me a lot safer than buying meme coins like $DOGE or $SHIB. 🤔 We dropped down about 20% from the high back in April and are now at a previous support level that has been tested once before, so potential bounce and upside is there. What's more, you can buy any amount of SATS on every exchange, only they are not advanced as TradingView (yet) and they still call it BTC ... Buy a couple of thousand SATS every week/month or whenever you have some spare change left ... and before you know it you'll be stacking a couple of millions ... (not financial advice). 🤑
INDEX:SATSUSDLong
by Nico.Muselle
24
Mitigating High Risk Long Positions with CoveringStop losses are an, often unwelcome, but ultimately necessary and life saving tactic to day trading. When going long, setting a high stop loss can be beneficial for getting out of bad trades quickly with small losses, and opening yourself up up more opportunities for good trades. Setting a low stop loss on the other hand, can be beneficial by greatly increasing your profit. Many trades that seem bad initially end up rallying and turning profitable. Generally speaking, the lower your stop loss, the higher your percentage of good trades. The downside to a low stop loss of course is that trades take longer, locking your funds up, and what if price actually hits your super low stop loss? You've lost a super amount of money. In my trading career so far, I've preferred a low stop loss. Losing out on a good trade due to a conservative stop loss is more painful to me than the risk presented by a liberal one. But this is a high risk to accept. Losing, say, 20% of my trading capital is definitely something I want to avoid, but not at the cost of a high stop loss. So, I can hedge my position, mitigate my risk, in one of a few ways. I can open a short position when I see my long position go south. Or I can engage in Dollar Cost Averaging: I buy more as the price falls to lower my average position size and ultimately my target profit. These are good options, but come with their own side effects. Opening a short position opens you up to risks associated with a short position, i.e. price suddenly shoots up. And Dollar Cost Averaging requires additional funds to keep buying. What else can I do? Enter "Covering". From Investopedia: "To cover is to take a defensive action to lower the risk exposure of a position" The graph attached here is a demonstration of Covering (the exact spots for buying/selling were picked hastily; this example is purely conceptual and an ideal situation). The basic idea is: when price begins to fall, sell it, just like a stop loss. However, unlike a stop loss, the intention is to buy back in at a lower price when price begins to rise again. This is like dollar cost averaging, because you're, in a sense, lowering your average position size. The difference is you don't need additional funds. This is also like short selling, because you rely on the price continuing to fall, but you haven't borrowed anything in order to benefit from this fall. As you can see in the diagram, as you sell and buy back, the amount of shares/coins/whatever you can afford off your initial capital increases, thus either increasing your profit if the trade hits the profit target, or decreasing your losses if the trade hits your actual stop loss. Here's how Ive been setting up my covers: When price begins to fall, I set a conditional market sell somewhere below the nearest support. If price falls to this level, I immediately sell everything Once I've sold all my shares, I set a trailing stop loss for the cover; I generally do ~1.2%. If, after I sell, price rises 1.2%, I buy back as many shares as I can with the money I got from selling earlier. Ideally, this trailing stop falls well below where I sold. Rinse and repeat until price either hits your original take profit or your original stop loss. Some things to note. Do not buy below your original stop loss! The purpose of this strategy is to respect your original decision, not make new ones . This is meant to mitigate a high risk situation, don't expose yourself to more risk in doing so. Also, you theoretically want to buy back above your original stop loss, even if it looks like it's going to fall through. Make your own call here, but by not buying back, you've essentially just changed where your original stop loss is, and thus changed your original trade decision. Of course, nothing is without its own risks. It's quite possible that you get stopped out for a loss every time you sell, i.e. you sold, price went up, so you buy back at a higher price to stay in the trade. This will eat into your profit if the profit target is eventually hit, or simply add to your losses if the stop loss is hit. From my point of view, that risk is less painful than the risk of hitting a low stop loss without covering. You theoretically give yourself more chances of being right with these micro trades inside of your larger trade, and if you get lucky, as is the case in my diagram, you might actually profit even if your original stop loss is hit. This strategy requires attention, for sure, but if you're both strategic and lucky, you can really save yourself from the downsides of a high risk trade without adding money to the pool, or exposing yourself to short selling risk.
COINBASE:COMPUSDEducation
by tapRoot_coding
1
Bitcoin's next move: Rise or Fall? Hello Everyone, I wanted to make a post about my current opinions of Bitcoin. Although I am a bull, I do believe bitcoin is overdue for at least one red month or two and we are starting to see signs of market exhaustion. With what seems as if every large financial institution and tech company is investing in bitcoin, why do I think this? Well, the market is still an algorithm. People are people and need to take home profit to support themselves. Some people have held since $20,000 and may want to take some profit. These types of things will trigger a sell off. Let's also not forget about the technicals: 1. Bitcoin's monthly, weekly, and daily charts are showing bearish price action with volume going down as price going higher. This could also be known as market exhaustion. 2. Bitcoin has failed to close a daily and weekly candle above $60,000. 3. Bitcoin continues to fail to close above our "Heart-line" which is the dotted line in the middle. Rejection could lead to another sell off. 4. Bitcoin has yet to bounce off the weekly 20MA or 50MA which it did several times in the 2017 bull market. 5. RSI is showing bearish "tops" as we are moving higher in price and lower in RSI. 6. MACD is showing clear waning buying momentum or possible exhaustion on the weekly and daily charts. Now, with all of this said, these are the technicals. Volume could come in and we could pump to considerably higher price points. We could just consolidate between $50,000-$60,000 for a while. But in my opinion, if volume does not start to come in, we will not hold above $60,000 and honestly a 15-25% correction would be very beneficial and healthy. I am personally waiting to DCA on a large dip. My buying targets are: $45,000, $50,000, and $55,000. Please leave a thumbs up if you liked the post and comment your opinion below. As always, be patient, use risk management, and good luck trading.
COINBASE:BTCUSD
by RomanXIV
2
New position, MP materials LONG!After due diligence, I really like this company and it' future expansion plans and current execution. My PT is 45-47 so there is a lot of potential with this one. Hoping for more short term weakness to build a position (I am not expecting all my buy limits to get it, but if they do, even better. After position has been built, I'll let them roll until PT is hit. What do you guys think of MP materials? Seeing it from a risk-reward perspective for the long-term I am really liking this company!
NYSE:MPLong
by Fed02
The Bitcoin DCA Strategy Easily ExplainedIn this post, I want to go over a strategy that beginners can implement with any asset or commodity that have solid fundamentals. Disclaimer: This is not investment advice. This is for educational and entertainment purposes only. I am not responsible for the profits or loss generated from your investments. Trade and invest at your own risk. Explanation - A lot of people have a hard time timing the market, and buying the exact bottom of a dip. - In this post, I want to explain a strategy that the average joe can use, in order to optimize their average entry price of their position - DCA, or Dollar Cost Averaging, is when investors divide up the total amount of capital they're willing to invest in, and simply invest a portion of it regularly, regardless of price action and volatility. - So for instance, buying Bitcoin every Monday regardless of whether it has formed a new all time high, or has corrected 30% from its local top, is an example of DCA. - We can apply this idea with a slight twist, and aim to buy the local dips. - Above, we see Bitcoin's daily chart on the logarithmic scale. - The 5 Simple Moving Average (SMA) is marked in blue, 20 SMA in green. - A very simple DCA strategy would be to buy at the 20 SMA when the 5 SMA is at a downtrend. - Looking at the price action of the past, we can roughly backtest this strategy. - The points marked by the red circle would be regions where we would have entered a position for Bitcoin. - Given that we enter $10,000 for each position, we would have entered a total of $50,000 at $25k. - Giving us 140% returns, this would amount to $120,000 today. Conclusion If you're struggling with technical analysis and you're having a hard time educating yourself on buying the right dips, refer to this idea, and try to think of your own way of dollar cost averaging through a simple strategy, as simple as referring to the moving averages. If you like this educational post, please make sure to like, and follow for more quality content! If you have any questions or comments, feel free to comment below! :)
Editors' picks
BITSTAMP:BTCUSD
by Michael_Wang_Official
117
Square Inc $SQ is looking good, againThis stock is amazing, is been going for breakout after breakout. I entered NYSE:SQ on November 4th and I thought that I entered very very late, look at it now. I have a very high expectative on this one not only because its price movement, also because is a favorite for Ark Invest. They are holding NYSE:SQ on AMEX:ARKF and AMEX:ARKK with 10% and 4% respectably, these are top performing ETFs. Right now is on a zone with a lot of support: previous high, 50 day MA and upward trend line. But is always risky to buy on the bottom of a pattern, the best buy point is on breakouts. In my case; that I already have a position, with this new entry point I can have a very good Dollar Cost Average. That´s why I´ll be watching NYSE:SQ very closely this week.
NYSE:SQLong
by dpuleo19
1
Bitcoin - DCA - The best strategy for most In this publication, I want to make a case for Dollar Cost Averaging (DCA) and explain why for most traders, it is by far the most profitable strategy. Rather than buying and selling BTC whenever you see a potential top or bottom, or trade with leverage. Let's travel back in time to the end of 2017, everybody is talking about bitcoin and this is how you heard about it. You get very excited about it, but you don't want to analyse markets, you want to invest in this coin because you believe it has a promising future. So you decide that you will put 100$ in it every month on the first day of the month and not look back, starting on Jan 1st 2018, pretty much at the top of BTC price. Bitcoin starts its decline, hovering some time around 6000 USD/BTC, but you keep investing, because you are smart and understand that you will get even more sats (1/100.000.000 BTC) for your dollar. More bang for the buck as it were. You just stick to your 100S/month investment plan, even through the dip to the 3500$/BTC lows in Jan/Feb 2019. So how much BTC would you have by now, how much would you have invested and how much would it be worth after (almost) 3 years ... In other words, what is your ROI ? Total investment : 3600 USD Total BTC accumulated : 0.48910342 Current Value : 13450 (BTC price of 27500 USD/BTC) ROI : 274% So, even though you started buying BTC, pretty much at the previous top, you still managed to get a return of 274% over a 3 year period. Now, tell me how many actively trading people will have made that return, even with leverage ? Q : Is it too late starting to invest 100$/month in BTC now that we have reached current prices ? A : Keeping in mind the current demand for BTC, mainly from institutional investors, the future for BTC is looking bright, and chances are that we'll even exceed those 274% in 3 years. The S2F and S2Fx models from PlanB predict a bitcoin price of somewhere between 100.000 and 288.000 USD/BTC by the end of 2024. Worth investing 100$/month ? Please note that this is not financial advice, do your own research and only invest money that you can afford to lose. Keep in mind that past performance is no guarantee for the future. Thanks for sharing your thoughts in the comments below, and if you found this useful, give it a like. Hope to see you back soon. Happy New Year and all the best wishes for 2021 and beyond!
Editors' picks
BNC:BLXEducation
by Nico.Muselle
82
Investing for Beginners 101 - The power of Dollar Cost AveragingInvesting for Beginners 101 --------------------------- How do you build your investment fund? ---------------------------------------- There is no silver bullet to it, and it is easy when you build it across an extended period of time. Introducing the power of Dollar-Cost Averaging (DCA)! One of the easiest ways to get started. DCA is an investment strategy in which you purchase an asset over an extended period of time, to average in at a good price while avoiding the volatility of the market. This strategy proved to be quite effective for both novice and experienced investors. How do you do it? Let’s start with the easiest strategy. Example 1: ----------- Let’s say you want to invest 1000$ in bitcoin in one month, and you want to scale in twice per week, on Wednesday (W) and Friday (F). What you would do is divide the 1000$ by 8 (2 times per week over 4 weeks), and you would purchase 125$ on Wednesday and Friday. You’ll end up with 1000$ worth of BTC by the end of the month. Easy? Here’s another example. Example 2: ----------- You want to invest 1000$ in bitcoin for one month period, and you want to purchase daily: You end up splitting 1000$ by 30, and you’d purchase 33$ every day until the end. The trick here is finding the most optimal strategy, and calculating your average price. DCA aims to avoid making the mistake of making one lump-sum investment that is poorly timed with regard to asset pricing Investopedia. There are multiple strategies for DCA’ing into an asset. One way I do it is the following: After every successful trade, I invest 20% of the profits in both #Bitcoin or #Ethereum (equal split) and transfer another 10% $USDT over to my fund. Why is DCA effective? ----------------------- It removes the burden of buying at an optimal price and averages your whole purchases. Here’s a real example of how I did it at some point. I purchased on average 24$ worth of $BTC daily in the 9000-9400 range. Now notice that the average price I scaled in: 9175. While the price reached as high as 9400. Instead of purchasing 1 bitcoin at 13K for example, think how much you would save if you invested while the price fluctuates with time between 11K and 13K. That’s a lot. DCA works best when the price will eventually rise in the future. And you can truly reap its benefits on a macro scale. One last note, you do not trade with your investment fund. It’s best to leave it for years to come, and DCA’ing over multiple years into an asset that will increase in price in the next 10 years is the surest way to maximize your exposure to it. Hope you enjoyed this thread! Until next time 🙂
Editors' picks
Education
by DarkMatter_CO
16
Bulletproof Dollar Cost Averaging Investing Explained.Dollar cost averaging. You probably heard about this strategy, but what does it mean in practice? And which type of dollar cost averaging strategy is the best? In practice it means buying Bitcoin, stocks, commodity and so on every week or month at the monday, sunday, at the start of the month or at the end, not caring about the price. You can also choose one random day in a month , when you make your purchase, more about that maybe in another Idea. An example of dollar cost averaging can be found below backtests. In this test I've compared buying Bitcoin at - weekly opens (Monday open) eg. 06 Jan 2020 Average buy price in 2020 - $9,255 - weekly closes (Sunday Close) eg. 12 Jan 2020 Average buy price in 2020 - $9,361 So buying at the weekly close or at weekly open are both a good idea, but buying at open each week has a bigger return of investment than buying on close by 2%. - monthly opens (First day in the month) eg. 01 Jan 2020 Average buy price in 2020 - $9,245 - monthly closes (Last day in the month) eg. 31 Jan 2020 Average buy price in 2020 - $9,827 Here we can see a bigger difference , while buying Bitcoin at open would gave you average price per BTC of $9,245, Buying at close would make your average buy $600 more expensive, 8% smaller yield. To see if this trend also occurs in the last year, I've calculated also a year 2019 with monthly values. It turns out, buying on open is here cheaper again, while buying Open would give an average of $7,022. Buying at close would make average buy of $7,287, small difference but very noticeable in long term. Example I. I am starting to buy Bitcoin for 15% of my gross monthly income (let's say 500$ ) from first january at weekly open starting from 01 January until today . How much would I have today? Average buying price - $9,255 Current Bitcoin price - $13,180 Yield - 13180/9255 = 1,424 = 42,4% Deposits - 42 per $500 = $21,000 in past value Value = 21000 x 1,424= $29,904 in current value Buying this year at open would give a very slight 0,1% increase in yield, so both buying at weekly open or monthly open is a good idea, maybe another time I can cover some random days in a month! This strategy also works for stocks, commodities and etc. IF you like my explanation, let me know by hitting that agree button or support me by some nice comment! Cheers, Tibor.
BITSTAMP:BTCUSDEducation
by TiborVrbovsky
3
Dollar Cost AveragingWith the markets getting banged up earlier this year, you have a LOT of opinions being thrown around on the best way to passively invest in the stock market. Because of this “Dollar Cost Averaging” has been making its way around the internet again as the best thing since sliced bread…but does it actually work long term? So in this article, I’m going to cover: What is it? Should you use Dollar Cost Averaging? Does it make sense? Is this a good strategy? Or is Dollar Cost Averaging not so good…and just plain stupid? So let’s dive into some examples to see if Dollar Cost Averaging is all it has been hyped up to be. What Does Dollar Cost Averaging Mean? The first time I remember hearing about it was in the ’90s where the market were basically just going straight up. Around that time financial planners recommended it because, at that time, you could basically close your eyes and buy, and within a few months you would have made money. They would suggest that at the same time every month you would purchase a particular stock or stocks, no matter what it or the rest of the market was doing. Example: Apple Let’s take a look at and example using Apple (AAPL) . This morning I went back over the past 17 months, so from January 1st, 2019, and I looked at the price of Apple at the beginning of the month. So the idea here is that you would invest $1,000 a month into AAPL shares. Let’s go through a few months and see how it performs, starting with January 1, 2019. At that time, AAPL was trading at $154.89/share. With my $1,000, I could have purchased 6 shares, costing me $929.34. Onto to February, AAPL is now trading slightly higher at $166.96. This time around you’re only able to purchase 5 shares with the price of the stock now higher. If you would buy 6 shares, you would invest more than $1,000. The rules for Dollar Cost Averaging is that you have a maximum amount that you stay below. So now you have bought 6 shares for $154, and 5 shares for $166. This means that you now have 11 shares and the average price is $160. The idea here is that you keep doing this every month, and you see your average price changes. If you continue to do this for 17 months, you would have accumulated a total of 69 shares. And over these 17 months, you would have invested around $15,000 to be exact, $14,998. So the idea here is that you invest a fixed amount every month. Now let’s take a look at an Apple chart really quick here and see what has happened since January 1st, 2019. Right here, I marked it in green. As you can see, Apple has been consistently going up, until it was hit by the pandemic but has since recovered and is going nicely up. So what does this mean for your 69 shares that you would have accumulated over the past 17 months? Well, 69 shares, and the current price right now of Apple is $317. This means the current value of your 69 shares is $21,934, which means that you would have made a profit of around $7,000. If you express this in percent, it would be a gain of 46% over this past 17 months or 33% per year. Not too bad. So Does Dollar Cost Averaging Make Sense? Based on this example, it seems that Dollar Cost Averaging is a pretty good idea where you are investing a fixed amount regardless of what the price is. The main concept or idea here is really to make trading or investing as easy as possible for everybody by not worrying about the stock price. But…is it really a good idea? More Dollar Cost Averaging Examples I chose two more stocks, that I’m sure you’ve heard of before and one somewhat special for me since I used to work for them: IBM IBM is a household name, their stock in the Dow, so I think most would agree they’re a solid company worth investing in, right? I can remember back in the day when everyone (including your barber) was telling you to invest in names like IBM and AT&T. So these are the two stocks that I want to look at right now. Example – IBM On January 1st, 2019 IBM was trading at $112.01, so we could buy 8 shares and invest a total of $896. If you were to look at the chart, you will see IBM’s price fluctuated between $112 to $134, and went all the way up to $140. Now we’re following the exact same principle that we did with Apple where we’re buying shares for $1,000 always on the first of the month regardless of the price. Therefore we are adjusting the number of shares. So after a year, we would have accumulated 120 shares with an average price of $132. So after a year we would have invested $15,919 into IBM. Now as of today, today is May 21st, 2020, the current price of IBM is $120. So let’s take a look at the charts before we come back to the results. So we’re looking at IBM and we are doing the exact same strategy that we did with Apple. We start on January 1st, 2019, and every month we are investing a fixed amount. As you can see, IBM has not been going up as nicely as Apple. This is exactly the problem, if you look now at the Dollar Cost Averaging, we see that over these past 17 months we would have actually lost $1,500. That’s a loss of 10% over 17 months or 7% a year. So what does this mean? Is Dollar Cost Averaging a good idea or not? Before I answer that question, let’s take a look at one more example. Example – AT&T Over the years everyone has said, “Invest in AT&T . This is what grandma did,” right? Didn’t grandma invest in AT&T and hold the stock forever? So I thought let’s use this as an example. Now, since AT&T is trading at a much lower price, we can afford to buy more shares. After the course of 17 months, we would have 405 shares, and we would have invested around $16,800. Let’s take a look at a chart and see what AT&T did over the past year and a half. Very similar to IBM, a little bit better, AT&T was going up until the pandemic hit. As of today, May 21st, they still seem to be hurt. So what does this mean for the Dollar Cost Averaging? If we look at the current price of $29.64, the current value is almost $15,000. We did invest almost $17,000 so we are sitting on a loss of $1,842. This is 11% down over 17 months, or 8% down over the past year. Is Dollar Cost Averaging A Good Strategy? What does all of this mean? Dollar Cost Averaging is a concept that comes from the 90s and this is when the markets were just going up-up-up. Right now we are coming out of the longest bull market in history. It has been steadily going for 11 years, so it should actually work like a charm. The critical part, the absolute key for Dollar Cost Averaging to work is to pick a stock like Apple that is constantly going up. And, hey, can you ever really be sure that you’re picking the right stock? Recap I personally think that Dollar Cost Averaging is kind of a stupid concept, even though it is super simple. I believe if you put a little bit of effort into learning how to trade, that you can run circles around the market. Because even if you look back at our example of Apple, we see that we made 33% per year. The way I personally trade, I only spend maybe 15 minutes a day trading and my goal is to make at least 60%. Recently, I traded an account and almost doubled it in two months. Right now, I’m trading another account where I’m planning to make at least 10% per month. With a little bit of effort, I believe that you can run circles around Dollar Cost Averaging. I highly recommend that you learn more about how to trade and don’t fall for the simple kindergarten principle here that is Dollar Cost Averaging. Anyhow, this is my take. Now you have some real-life examples and can decide whether this makes sense for you or not.
Editors' picks
NASDAQ:AAPLEducation
by rockwelltrading
25
BTCUSD Trading Idea going into 2020Personal outlook - Not investment advice, serves as a note to keep track. This is focused on optimizing the process of dollar cost averaging into Bitcoin. The initial buy in (~15%) to be placed at the 50 week moving average expected in November. The second buy (~20%) to be placed at the long time support around 5900 which may coincide with the 200 week moving average coming up by January 2020. If this strong support breaks (unlikely) add %25 around 4500-5000 if the MACD is signaling a cross (April 2020). As this is now fairly well positioned for the long term, only add ~10% more whenever a correction above 25% occurs, preferably in August or November 2020. Closing Strategy: DAI
COINBASE:BTCUSDLong
by svg1996
Risk Management: Satefy Orders (Dollar Cost Average)I believe risk management is key, because sometimes, finding the perfect entry will not be enough. The market is what it is, and nobody can predict with 100% accuracy how the price will behave, even with all the great indicators we got out there. With that in mind, we should come prepared that the price will go against you, and we should take advantage of it, because most of the time it will bounce back up. This technique is especially useful in trading low timeframe also known as Scalping. The idea is to lower the inital entry order size , and split the remaining order size progressively through the safety orders as the price goes against you. This will make the total trade average entry - or break even - at a lower place than if you were simply trading the initial entry. That means the take profit will also be lower, because we can now take profit from the total order size/volume . Here is a simple example with a long: We buy in on the `LONG` label with 10% of our trade capital at around 9325$. Our take profit is 1.3% which makes a 9447$ target. But the price goes down, until it reaches our first safety order trigger line, at around 9231$. At this point we add 10% of our trade capital. It is the `DCA` label on chart. The break even line is now in the middle of the inital entry price and the safety order price, around 9275$. We still have our 1.3% take profit target, but it is now at 9396$ instead of 9325$. At last, the price bounces back up, as expected, and we take profit. Example with a short with 2 satefy orders: What are the risks? In the worst case scenario , which we know will happen at some point, the price does not go back up. It is important to know what are the risks so that we do no get liquidated or lose too much of our account. Let's dive into the numbers. We set up our strategy so that we have 3 satefy orders max, and the stop loss is on step below the last one. That makes 4 entries in total, and we decide to use 1% of our capital on each entry. Each step is seperated by 1% of the price to make things easier. When we hit stop loss, how many % do we lose? 1. On first safety order, price is down 1% and we traded 1%. That's 1% drawdown. 2. On second safety order, price is now down 2% for 1% of our order, and 1% for the other 1%. That is 1.5% drawdown. 3. Of the third safety order, we get 3% + 2 % + 1% = 6%/3 = 2% drawdown. 4. On stop loss, we get 4% + 3% + 2% + 1% = 10%/4 = 2.5% drawdown. => The price went down 4% but we only lost 2.5% of our inital capital. That is why we can say that safety orders reduce risk . /!\ Using leverage will multiply the risk. Using 2x we would have lost 5%. This can climb very fast, so be careful. One thing we can do when a stop loss is hit is to reverse our order, as most of the time our stop loss is hit because the trend is reversing. But again, be careful as it could cost you double.
BITMEX:BTCUSD.PEducation
by cyatophilum
5
CVC: The hidden gem with a dark sideCVC (Civic) is a hidden gem with a dark side. With a market cap of only 20.12 M, this coin has quite a good history of scalping, as well as being stuck in a sideways rutt for months. Its an interesting coin to trade simply because of its unique behavior, however, one must understand the risks involved. This coin has a low market cap, so additional care must be used while trading it. Also, the dynamics of such a coin do require a bit more of a budget to manage its unexpected drops. This type of coin is really a very good coin though, for a saving account paradigm (constant dollar cost averaging at fixed percentages or steps), with the proper budget. 100 leverls at 1% of a linear base level can result in consistent profits, but don't be complacent about your risk assessment.
Long
by RobertD7723
Plan To Shift Into Leveraged Eth Before April Bull MarketEthbtc just completed 5 distinctive waves and is now printing a weakening pattern of wicky doji bars which suggests impending reversal south. I am extremely interested in this chart because my main long term trading plan is to shift my 1x btc and eth holdings into 3x leveraged ethbull tokens. I don't know what pattern this correction will be so I am assuming it to have a choppy wxyxz pattern. The ethbtc impulse lasted 7 weeks, so if you assume that the correction will also take 7 weeks then it gives a bottoming date at March 20. Last year we saw a huge run up starting April 2, this somewhat coincides with the March 20 date. My plan is to allow ethbtc to dump out as much as possible then begin dollar cost averaging until March 20. I do not intend to get the best price but want a reasonable average fill. I will wait until the first green day then use that as my starting point, divide the number of remaining days until March 20 and then scale in evenly across each day until I am 100% in ethbull. I strongly feel this is a pivotal point and that how I treat this opportunity could be the most important decision I make for the next 5 or so years. Eth could do some incredible things and getting into a position where I can ride out all choppiness all the way to the other end of the major bull cycle could be one of the best trades I ever make. I am not so interested in shorter time frames and am spending my focus researching longer macro cycles in order to prepare my mindset to stay with this trade until the logical conclusion and then have the discipline to take profit without overstaying my welcome. The 6 month cycle might produce a sell signal in june/july but I would actually like to be able to hold through that at least until December. I will be posting future charts on what I find regarding trading these longer cycles.
Long
by mljones
5
Dollar cost averaging plan next 7 weeksThis recent impulse lasted 7 weeks on eth. It also hit the 16 week donchian channel high from a previous chart I posted which indicates this is a long term buying signal. I strongly expect the recent impulse to reverse a bit since the final leg is an extended 5th wave and those are almost never stable. They do retrace. Since we're getting into a phase where trading is going to get a little crazy I am just going to dollar cost average accumulating leveraged ethbull tokens using my existing btc and eth holdings. Whether eth goes high or low during this period my priority is to just get a decent overall average fill. I have been tracking the rate eth is getting locked by defi and have mentioned a number of times about the possibility that defi locks eth at a rate faster than new eth is mined. That would be the catalyst to send eth to much higher highs as posted in the previous chart. So I feel like the decisions I make over the next month or so could be pivotal on everything that comes for the next several years. My trading here needs to be such that it gets the basic idea right. The worst scenario would be to try to get an exact entry but miss the fill and then have to chase it. I'm going to sleep on this which will give eth another day to dump out a bit and this price action will give me time to decide exactly how to proceed.
by mljones
5