Investing According to Central Banks' Policies

Do you think central banks are successful institutions in terms of their operations? Even if you have some doubts about that, they are directly affecting what you are going to buy and how much risk you would take in the markets.

Image from thread

Though they are often criticized for their decisions, following their path may not hurt in the long term. First of all, central banks decide on the vividness of the economy via interest rates. If the economy is too hot, which results in some inflation, then central banks take action against the growing giant. Every time central banks focus on applying a plan, they either end up with Quantitative Easing or Quantitative Tightening.

Remember, central banks can directly affect your investment decisions and way of living. When they focus on decreasing the money supply, QT, then you should not have risky assets. On the other hand, if there is a strong QE in the world, then taking some risks to grow bigger might be a good option too.

Let's talk about it in more detail with additional reasons

Phase (1): Non-DCA Zone for Buying in QE

I want to divide cycles into subcategories. the first and the major category will be either quantitative easing or quantitative tapering term in the globe. If we are in a quantitative easing phase, then there will be a buy pressure on the prices because of the large amount of money circulating. The prices of assets will always push higher price levels.

Just remember the time when we all were locked in our houses and the markets tested higher high levels due to money printed in 2021. It is a result of one of the basics of supply and demand theory: once something becomes abundant, then the value of the thing you are exchanging will keep rising. In this phase, *you should be the seller rather than the person who is eager to purchase an asset when the prices inflate.

A cycle investor should be well prepared for this phase of the market. It is that time to collect dollars by selling your things at good prices. The only dollar cost averaging strategy that you can apply is selling your assets in small portions (Avering) as the price increases. There is no room to be an emotional investor while you can make life-changing gainz in a bull cycle.

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Phases (2): DCA’ble in QT

As you remember, we talked about the global policy of the central banks in the beginning. Now, if it's a quantitative tapering phase, you may consider starting to dollar cost average of the things you want to purchase.

As of writing, they are in a long depressing boring, and tiring QT phase by the FED and other major central banks. Actually, the worst thing about this phase is that it negatively affects your psychology even if you believe you really have resilience and willpower. I believe this is why veteran investors say that the market is driven by psychology.

While prices are going down, and most probably they have been going down for months, then you may prepare yourself for purchases. Having certain purchasing targets is as important as knowing what to buy. For example, it has always been clear in the crypto ecosystem to buy Bitcoin before the bull run, however, not knowing the price levels to buy Bitcoin may end up with missing a profitable trade when you are hunting the “lost dip”.

when the timing and global factors are eligible for starting the DCA strategy, you can set your purchasing limits and wait for these levels to come. If the prices of crypto or other assets never hit these lower levels that you decided, you may choose to wait for are there strong support levels or you can stay with your stable fund.

However what is important in the cycle investment strategy is that you should have more information about the global, major, risks and opportunities because limiting your scope with a mini market will always be misguiding. Don't forget, that there is a need for a loser to make a winner in the market. Good timing, well-set purchasing targets, and strong psychology* play a critical role that is almost equal to finding the dip in an asset. you need to have an organized game plan if you want to deal with vampires, whales, and hunters in every market.

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