Beating The 2024 Market Using DCA
Buy Low, Sell High. Is Investing Really That Simple?
In a word, yes! However, achieving this simplicity requires several basic strategies and patience. If you're looking to get rich quickly, this article is not for you.
We all know the adage: "Buy low, sell high." However, an equally important but less known phrase is "time in the market, not timing the market."
The Pitfalls of Perfect Timing
Attempting to time the market's bottom for the perfect entry point is a strategy fraught with difficulty and often leads to limited success. Instead, consider employing a Dollar-Cost Averaging (DCA) approach. This method involves investing a fixed sum of money at regular intervals, regardless of market conditions. By doing so, you:
Reduce Risk: You're not betting on a single entry point but rather spreading your investment over time.
Average Cost: This strategy naturally averages your purchase price, potentially lowering the overall cost of your investments.
Build Discipline: Regular investments foster a disciplined approach, removing emotion from the investment process.
Remember that this strategy is for long positions.
We all know the adage: "Buy low, sell high." However, an equally important but less known phrase is "time in the market, not timing the market."
The Pitfalls of Perfect Timing
Attempting to time the market's bottom for the perfect entry point is a strategy fraught with difficulty and often leads to limited success. Instead, consider employing a Dollar-Cost Averaging (DCA) approach. This method involves investing a fixed sum of money at regular intervals, regardless of market conditions. By doing so, you:
Reduce Risk: You're not betting on a single entry point but rather spreading your investment over time.
Average Cost: This strategy naturally averages your purchase price, potentially lowering the overall cost of your investments.
Build Discipline: Regular investments foster a disciplined approach, removing emotion from the investment process.
Remember that this strategy is for long positions.
The best strategy I have found is to establish a core position and then trade around it. If a stock goes on a nice run, it's ok to take some profits. I would then use those profits to buy some back on a pullback or dip. You can actually increase the number of shares without spending any extra money!
Since we are buying shares over time, entry points don't have to be perfect. I would, however, make sure I am buying slightly above a defined support level. Never chase a stock up or down. Be patient and disciplined, and you will get a better price.
Space your purchases out over a number of days or weeks. If your entry was too high, don't try to average down on the same day. People always take profits, so you're sure to get a better price the next day or week.
Many people ask how I pick my stocks. Research, research, research, and pay attention to cyclicality and overall market trends.
I go to their websites and sign up for investor alerts to receive real-time press releases and SEC filings. While I'm there, I also check the management team for qualifications and prior successes or failures.
I like to buy stocks that have analyst coverage with a strong buy rating. The more, the better. Find analysts that have good track records and find out their reasoning behind their price targets. Let them do some of your leg work.
Finally, I rely on EPS more than any other metric for determining that my long positions will continue to rise in value.
As long as EPS is trending upward, I'm confident the stock will continue to do well, and I increase my position whenever it dips.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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I have a corporate finance background with a good record of identifying undervalued stocks ready to break out.
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Dan’l : Dollar Cost Averaging (DCA) isn’t for everyone, even if they’re long term investors; most especially for traders, and pretty much anyone that’s willing to do their own due diligence.
a good bargain, almost as much as a good cup of coffee… blending several brands gives me the flavor I want, and at much lower cost, and (here’s where the analogy lands) by stocking up on each while they’re on sale? I save more.
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SoOo… once you’ve picked the right stocks, and know their support and resistance levels? Buy more, on sale.
Depending upon your tax bracket, and planning well ahead, stay ready to swing or even day trade around knives: volatility gives you opportunities to earn considerably higher profits and/or increase your number of shares (and this is important) even when the price is lower than your cost.
You get flagged as a Pattern Day Trader if you open and then close any position on the same trading day more than three times in any five consecutive trading days, buUut… you do it the other way around (close and then open) every single day if you want to.
Why should that matter to long term investors? Because all investors are traders, at least once, and if you become a better trader? You’ll be an even more successful investor ~;-)
smoothshoe OP Dan’l : I'm not a trader, I'm an investor. I trade a little on the side, but 95% of my positions are long. I was asked by moomoo to share my 2024 journey because of my 119% yearly return. Doubling a large portfolio in a year is rare. And, I also doubled my Robinhood portfolio for the second time in 4 years, and it is much, much larger. My DCA strategy is working just fine. When you "trade" as much as I do, you learn how to minimize capital gains taxes. And I don't have to worry about pattern day trading because all of my portfolios have more than enough money in them to qualify for unrestricted day trading. And, if you read the whole article, I mentioned trading around my core positions.