Dollar Averaging - Good or Bad?

Could you explain to me the difference?

tech/a said:

Could you explain to me the difference?

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You answered yourself in post 94, above.

Sorry---lost me.
That post appears to me to be at odds with your posts.
No problems.

tech/a said:

Id rather dolar cost average UP in a screaming bull market than DOWN in a bear market which is and will change the face of percieved value---sooner than later.

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Your post.
I trust you can tell the difference.

Sorry then I seem to have clearly misread the crux of your posts.

So_Cynical said:

Ok REALTIME challenge accepted.

28-02-2008 SUN (160 @ 14.45)
01-07-2008 SUN (165 @ 12.45)

Ill post when i sell.

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MichaelD said:

7-11-2008 SUN 8.85

Speaks for itself.

What's even more extraordinary here is that people are STILL talking about dollar cost averaging as if it's a good idea. Hasn't the last 12 months taught you anything? (I guess not).

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And what will be the SP of SUN be in 6 months or whatever...?

If i could afford to, i would be averaging down again...as i was
clearly inpatient with the 1st average down and should of waited,
im also in a non leveraged position and have no time pressure, i can
wait for the turnaround.

Ill post when i sell, and i will be in profit.

As for proper dollar cost averaging...it clearly works over time, and clearly
is more profitable if u can get all the variables right....especially timing, and
have no time pressure.

Having said all that...if anyone had been reguarly averaging into almost any
stock over the last 4 years, they would now be sitting on a substantial loss.

Timing is everything.

So_Cynical said:

And what will be the SP of SUN be in 6 months or whatever...?

If i could afford to, i would be averaging down again...as i was
clearly inpatient with the 1st average down and should of waited,
im also in a non leveraged position and have no time pressure, i can
wait for the turnaround.

Ill post when i sell, and i will be in profit.

As for proper dollar cost averaging...it clearly works over time, and clearly
is more profitable if u can get all the variables right....especially timing, and
have no time pressure.

Having said all that...if anyone had been reguarly averaging into almost any
stock over the last 4 years, they would now be sitting on a substantial loss.

Timing is everything.

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ASsuming that SUN is still around in 6 months time!!!! This is the crux of averaging down (as opposed to up). If you average down far enough, you're stuffed

So_Cynical said:

If i could afford to, i would be averaging down again...

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And there it is. The clarion call of the losing strategy that is averaging down.

Q. Why can't you afford to average down again?
A. Because all your capital is tied up in trades which are now worth a fraction of what they were when you entered instead of in cash or in trades that are moving in your favour.

Contrast this to pyramiding or scaling into a position that IS moving in your favour - I never have the problem of lack of cash when I'm pyramiding up a position.

ps I bet you didn't think SUN would be $8.85 now, did you? (C'mon, be honest with yourself.)

The very existence of this thread can tell you a lot about human psychology in the markets...

MichaelD said:

And there it is. The clarion call of the losing strategy that is averaging down.

Q. Why can't you afford to average down again?
A. Because all your capital is tied up in trades which are now worth a fraction of what they were when you entered instead of in cash or in trades that are moving in your favour.

Contrast this to pyramiding or scaling into a position that IS moving in your favour - I never have the problem of lack of cash when I'm pyramiding up a position.

ps I bet you didn't think SUN would be $8.85 now, did you? (C'mon, be honest with yourself.)

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Honesty is something i don't have a problem with....no obviously i didn't
think SUN or pretty much everything else would be where it is now....so
considering bottom picking is impossible, im reasonably happy with what i
payed for my positions.

Sure could of done better...but also could of payed much more, i actually
almost took out a margin loan in March...dodged that bullet.

I just knew that pyramiding would get brought up here eventually..funny
how u don't call pyramiding or scaling into a position...averaging up.

I think DCA gets a bad name through misuse rather than being a bad trading vehicle ….

If used wisely, it can actually take a bit of heat out of a trade by :-
a) Lowering the initial potential loss via position sizing
b) Takes the pressure off those who’s Technical Analysis is ok, but not great, by making the Entry a little less critical.

The main problems I see, are those using “averaging down” probably don’t have any entry and exit criteria.

An “Investor” might try something like the following …. Obviously a Trader would have a slightly different approach (Mainly shorter Time Frames)

1) Each “lot” purchased should be no more than 2% of Trading Capital (ie $100,000 Account ….. Only purchase in $2000,00 “lots”
2) You must still set a Stop Loss on the original purchase (Can be set pretty wide due to the lower amount of capital used to initiate the trade ….. (Perhaps up to 50% of T/V=$1000.00 ….. =1% of Capital )
3) Only average down on heavyweights such as BHP, CBA, WPL etc. (Specs require a different approach)
4) Only average down on Pivot lows which have signaled a reversal (Possibly the most important rule imo……..N.B. You would never actually buy the second “Average Down” lot if the Technical Analysis criteria was not met (Pivot bottom- reverse etc) …… Therefore maximum exposure would still only be 2% of T/C if the stock goes belly up
5) If the original purchase gets into profit quickly, simply average up …. When in profit, you can obviously use shorter time frames for the pivot lows to take advantage of the trend (Trading as opposed to Investing)

All only my observations and opinions and obviously Rules have to be fine tuned to suit the individual, but happy to be proven wrong ……….

PS Personally, I’d be pretty wary of averaging down more than a second time ……….. That leaves the loss on a “belly up” stock at a maximum 4% Capital loss, which is bearable considering it won’t happen very often on heavyweight stocks.

So_Cynical said:

I just knew that pyramiding would get brought up here eventually..funny
how u don't call pyramiding or scaling into a position...averaging up.

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OK, I'll call it averaging UP if that'll make you happy. The key word isn't averaging, it's UP versus DOWN.

SUN $7.89 - still happy with the price you paid?