Dollar-Cost Averaging Versus Active Trading Strategies: Which One Will Survive in the Next Market Cycle?

As far as investing is concerned, there is always a point of debate, which one is more effective Dollar-Cost Averaging or Active Trading. They are quite different, as both have their supporters. This is a question that I think is worth considering as a person who adheres to financial trends and watches people in Nigeria and the rest of the world attempt to expand their finances, as markets become more volatile.

Dollar-Cost Averaging is an easy technique. It involves putting in a certain sum of money on a regular basis such as once in a week or once in a month regardless of the market dynamics. Buying more shares when prices are low and buying fewer when they are high.

This eventually leaves you out of the burden of attempting to time the market. I prefer this approach since it is less emotional and consistent. It is particularly suitable to individuals who lack the time to monitor the market on daily basis. It can be easily used by even small investors who are just trying to accumulate wealth at a slow pace just as many of us in Nigeria would.

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Active Trading on the other hand is a matter of timing. Based on charts, news and economic signals, traders attempt to purchase at low prices and sell at high prices. Others benefit by making easy cash this way yet others end up losing their money. Any active trading requires time, talent, and much discipline.

Where markets are very healthy in terms of data and systems are speedy, it can be more effective. However, to most retail traders, mostly in third world countries, the risks are high. I have observed friends who attempt to play the market active think they have been more stressed than rewarded.

In the future of the market cycle, I believe that Dollar-Cost Averaging will be more viable. Markets are increasingly more volatile and the short-term movements can hardly be predicted.

Timing is even more difficult with the artificial intelligence, rapid trading bots and global economic uncertainty. Yet DCA is not based on forecasting - it is based on waiting and waiting. It accumulates wealth slowly like farming, you put the seed in, then you wait, and then you reap.

To sum up, active trading can provide quick thrill, however, Dollar-Cost Averaging can provide peace and slow growth in the long term. During the next market cycle, as the world will go up and down and up, it is the patient who continues investing small bits by small bits not the trader but the patient that is likely to emerge victorious.