Trading and investing is not gambling, hence we have to strategize instead of going all in all the time. While most of us know how it works, that is, to buy in tranches at different entry prices, it is quite uncommon to see traders consider the pros and cons of accumulating stocks at different rates. In this week’s post, I will explain the difference when you employ a lower risk approach compared to a higher risk one. In essence, when you choose either approach, you will gain or lose amounts proportionate to the amount vested. The important message I am trying to bring across is that a lower risk approach does not always work well especially in terms of maximizing opportunity costs, on the other hand, blindly deploying capital out of green might lead to stacked losses.
Accumulating during a downtrend
If you notice the simple model above, you would have noticed that the person who deployed capital in larger