Parameters
In dollar cost averaging, the investor decides on three parameters: the fixed amount of money invested each time, the investment frequency, and the time horizon over which all of the investments are made. With a shorter time horizon, the strategy behaves more like lump sum investing. One study has found that the best time horizons when investing in the stock market in terms of balancing return and risk have been 6 or 12 months.
One key component to maximizing profits is to include the strategy of buying during a downtrending market, using a scaled formula to buy more as the price falls. Then, as the trend shifts to a higher priced market, use a scaled plan to sell. Using this strategy, one can profit from the relationship between the value of a currency and a commodity or stock.
Read more about this topic: Dollar Cost Averaging
Famous quotes containing the word parameters:
“What our children have to fear is not the cars on the highways of tomorrow but our own pleasure in calculating the most elegant parameters of their deaths.”
—J.G. (James Graham)
“Men have defined the parameters of every subject. All feminist arguments, however radical in intent or consequence, are with or against assertions or premises implicit in the male system, which is made credible or authentic by the power of men to name.”
—Andrea Dworkin (b. 1946)