Shares of stock in quality companies are just like investment properties.
Yet, the stock market invokes strong emotions of fear at both ends of the spectrum: from losing all your hard-earned money to the fear of missing out on gains.
This fear can lead to poor decisions, like buying too high or investing too much capital at once.
But what if you could trade with confidence, like a real estate investor?
By reframing your mindset, you can make trading easier.
Dollar Cost Averaging (DCA) is a simple strategy where instead of buying all shares at once, you spread your investment over time.
In real estate, you have to buy the whole house at once. There’s no option to buy just the kitchen or the living room first.
But in the stock market, it’s different. You don’t have to buy all your shares of a stock at once. I understand why you feel pressured to do so, especially when you think a stock is about to take off. I'd argue that most of the time you should not go all in at once unless you are setting up a swing trade with a solid stop loss.
Going all in at once leads to poor decisions. You might end up buying too high or putting too much capital at risk. Remember, the market isn’t going anywhere. And unlike real estate, you don't have to buy the whole house at once! Think about building up your position gradually:
This method spreads your investment over time, reducing the risk of buying at the wrong moment. By buying shares gradually, you stay flexible as the market changes. Building a position slowly can work in your favor.
4 Strategies to Dollar Cost Average: (with links to blogs)
1. Price Pyramid:
Buy more shares as a stock pulls back (read full article).
2. Time Pyramid:
Buy more shares at regular intervals, regardless of price (read full article).
3. Selling Covered Strangles: Â
Own 100 shares, sell another put, and possibly get called away at a higher price (read full article).
4. Selling Puts:
Sell puts on companies you want to own at a lower price (read full article).
When you take your time and buy shares gradually, you’re following the Good Kids Trading way. It’s about being smart, not hasty. Even if you think a stock is ready to skyrocket, remember that a measured approach often wins in the long run.
The Benefits of Dollar Cost Averaging (DCA)
Dollar cost averaging a smart choice for the following 3 reasons:
1. Reduces the Impact of Market Volatility:
By spreading out your investments, you’re less exposed to market swings. This approach helps protect you from sudden drops by not putting all your money in at once.
2. Lowers Emotional Stress:
DCA removes the pressure of trying to time the market perfectly. Instead of worrying about the right entry point, you can focus on steadily building your position, keeping emotions like fear and greed in check.
3. Encourages Discipline:
Sticking to a regular investment schedule builds discipline into your trading plan. Consistency is key to long-term success.
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Happy trading, good kids!
-$Maxwell
For more insights and real-time market updates, join our GKT community on Discord. If you need personalized help, schedule a 1:1 intro call using my Calendly link.
This is not trading advice, it's for your education. This is financial advice. Any trades or decisions you choose to make are at your own risk.
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