OLD METHOD

Dollar cost averaging is a financial method to reduce the overall risk of volatility in the price of securities over time.  Anyone who has a set amount of investment per month is using the method, even if they don't know what its called.  An explanation of how it works is in order.  So lets say we are going to invest a $100 a month for the next 25 months for a total investment of $2500.  The price of the securities we are purchasing rises and falls in the next 2 years.  Are average cost of shares is $7.75, however by dollar cost averaging the cost per share is $6.89.

Wonderful we are already saving money.  The only drawback to this method is that sometime the price of the securities start to fall.  If the security falls in value over time then you would have alot of shares that are not worth as much.  The method reduces volatility, but doesn't eliminate risk of falling prices.

NEW METHODS

So the true aim of dollar cost averaging is to reduce the overall cost per share.  We have to ask is there a better method, that would reduce our costs even lower.  The answer to this is yes.  We can correlate the stock, mutual fund, or crypto to major indices.  Once we find an index that has a high correlation we can use it to time our purchases.  A perfect correlation would be a 1 to 1.  If the stock market goes up, our share prices go up by the same percentage amount.  We can either graph out the correlation by putting the price on one axis and putting the index on the other axis,  we then place a line thru each data point and figure out the slope of the line.  An easier way is to just use a spreadsheet to run this correlation test on different indexes.  So when the market is down we purchase more shares, and when the market is up we purchase less shares.  You can set up bands around below and above as trigger points in order to make the decision to buy or sell.

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