Even with equities, rebalancing trades which aid in this volatile market, mimic some of the benefits of this strategy….

Works wonderfully and I’m glad more people are highlighting this, as too many ‘retail’ investors simply just plunk down a large amount of cash and buy everything at once.

I guess one word of caution with this strategy/methodology though, is that it’s not for everyone. You’ve got to be able to take a more active approach in managing things or know enough to be able to set alerts and all that. Just wanted to point that out to the average retail investor who is usually much more passive.

I would also argue that some hedge funds do this (I track hf portfolios on my blog). You can tell by their disclosed average costs or their SEC filings, investor letters etc, that they’ve scaled into a position over a couple quarters depending on where the stock trades. They’ll maintain a core medium sized position and trade in and out of bits and pieces of their holding.

Jay
marketfolly.com

I have been using the scaling strategy during volatile times and I agree with you. I bought some stock at a low price and it got even cheaper. By the way, which broker would you recommend for trading corporates? I have not had much luck finding one.

I totally agree with #2 in this piece – too many people apply the “don’t throw good money after bad” mantra incorrectly. Scaling in to weakness on oversold conditions (and taking profits as you also mention) can yield very good results if you know what you’re doing.

I recently was trying to write a blog piece on incentives and was really struggling until I figured out I was trying to include too many different things. It turned into eight postings on misaligned incentives in different parts of the market.

In making trades, you are right on the mark. When I was teaching students about the market, I’d remind them that when you sold a part of a long, you still were rooting for it to go to infinity (so you could keep selling profitable pieces of it) and if you were short you would still be hoping it went to zero (even though you had a smaller but perhaps better-sized position).

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