To The Moon

Trading Tip for Beginners: Enhanced Dollar Cost Average (EDCA) Vs Dollar Cost Average (DCA)

I'm sure most of you here have heard of dollar-cost averaging (DCA) and now let's have a look at enhanced DCA (EDCA). EDCA is a rule-based strategy that retains most of the attributes of traditional DCA and improves on it. You will invest a fixed amount of money at predetermined intervals for DCA, whereas you invest more money in down months and less money in up months.

DCA is used to remove emotions from the investing strategy and it doesn't require the investors to time the market. Those who DCA usually perform better than average investors who tried to time the market. Over the long-run, the annualized returns from S&P500 is around 10% and it prevents the investors from panic selling when the market crashes temporarily but misses the substantial gains afterwards.

Research have shown that EDCA tends to outperform DCA 90% of the time. How does EDCA work?

E.g. If you are planning to invest $1,000 per month using DCA,

$10 per share (1st month) = 100 shares

$12.5 per share (2nd month) = 80 shares

$8 per share (3rd month) = 125 shares

Total = 305 shares, average price of $9.836

Using EDCA approach, you will invest more ($1,500) when the market is down and invest less ($500) when the market is up.

$10 per share (1st month) $1000 = 100 shares

$12.5 per share (2nd month) $500 = 40 shares

$8 per share (3rd month) $1500 = 187.5 shares

Total = 327.5 shares, average price of $9.160

Although it's the same $3000 investment over a period of 3-months, you will be able to buy more shares using EDCA approach at a lower average price. Do make some refinement to your investment strategy to optimize your returns over the long-run!! The risk is always lower when you buy the different indexes at a lower price!!

$Vanguard S&P 500 ETF(VOO)$$SPDR S&P 500 ETF Trust(SPY)$$SPDR DJIA ETF(DIA)$$Nasdaq 100 ETF(QQQ)$$Nikko AM STI ETF(G3B.SI)$$STI ETF(ES3.SI)$

Are you all still using DCA strategy or will be using EDCA approach instead? Do let me know your thoughts!!

@CaptainTiger@TigerStars@MillionaireTiger@Tiger_chat