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How much and when to sell when I use dollar cost average?

Personal Finance & Money Asked by cholo14 on January 8, 2021

I want to start investing in Bitcoins (but the question applies to other assets as well) using a simple dollar cost average strategy. What I do not understand about this strategy is how and when I should sell my asset. Suppose I invest 50$/month every month, at which point I should make a sale and how much quantity I should sell? Note that I consider this a short-medium term investment of 1-2 years and the goal of the sale operation would be to make as much profit as possible.

Note that a related question is here. However, the OP there was asking if there exists a selling dollar cost average strategy. My question, instead, is more general, as I am fine with any selling strategy, but I just want to understand at which point I should start selling.

3 Answers

What I do not understand about this strategy is how and when I should sell my asset.

That's because "dollar cost averaging" is one of the silliest concepts in "investing".

Note that

  1. "dollar cost averaging" does not attempt to, and has no connection in any way, to guidance on "when to sell"

  2. "dollar cost averaging" is completely stupid. in as much as it means anything, it means nothing more than "I kept buying the same thing" or "I am on a real loser, but I can use the phrase 'dollar cost averaging' to sort of make me feel better"

Again, very simply, "dollar cost averaging" (setting aside that it is, anyway, a completely silly phrase/concept) has utterly no connection, in any way, to your question "decide when to sell".

Answered by Fattie on January 8, 2021

Dollar-cost-averaging is not a strategy* in my opinion, but an artifact of how many people invest in retirement accounts, for example. They put in a set amount every period, and that helps balance out the fluctuations in value. If the market goes down, you invest in lower periods and benefit when it comes back up. Yes, the investments you made when the market goes up have a loss, but the gains average out the losses. If the market goes up over time, the good periods outweigh the bad and you make a profit overall.

What you're wanting to do is time the market. You want to buy low and sell high. Which is admirable, but it is not a feature of DCA.

If what you're investing in moves up consistently, then you'd have been better off investing it all at the beginning. If it goes down, then DCA will reduce your loss by buying more in the down times. If it is stagnant, then DCA does nothing on average.

If you want to DCA bitcoin, just invest a set amount of bitcoin every month (or whatever period you want) and see what happens. Nothing is guaranteed.

at the end of the day I want to make a profit for sure and not lose money

Not possible with bitcoin. There's no way to know what bitcoin will do in the future to guarantee a profit. If you buy and it goes down - do you buy more? What if it never recovers? The only reason you'd buy an investment is if you think it will go up in value. If you think that, why not just buy as much as you can now? Why buy some and wait for it to go down to buy more?


*To be fair, it can be a strategy for reducing risk, but not a strategy to maximize return.

Answered by D Stanley on January 8, 2021

This year, you should have sold GOOG on Feb 20th, bought it back on Mar 20th, sold it on Sep 2nd and bought it back on Sep 23. It's absolutely clear that those were the most profitable dates for buying low and selling high. The problem is that these dates can only be known in hindsight.

Without hindsight, what's a guy to do? You have to formulate a selling strategy that you are comfortable with and accept that sometimes your strategy will be right and sometimes it will be wrong.

For example, a few months ago I bought a grey market $25 new issue preferred stock at $24.40. While my goal was to capture a quick 30-60 cent pop, I was willing to hold it for the income. Within a few days it dropped and I bought more at $23.30. I sold half when it recovered to $24.40 two weeks later. At that point, if it drops again, I buy more. If it rises, I sell the other half for another gain. I have no control over the market and it decides my subsequent actions which I'm comfortable with. FWIW, it's now $25.80 though I'm long gone. No problem.

In essence, as you can scale in with DCA, you can scale out as well. Avoid the woulda, coulda, shoulda. Take what you can (profits) and accept that getting the highest and lowest price is sheer luck.

Answered by Bob Baerker on January 8, 2021

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