A Better DCA Strategy for Any Long-Term Stock Investor
Last night, while serving as one of the judges for the FM Awards by Finance Magnates I had several insightful conversations with colleagues from across the financial industry. One of those chats was with another judge, Javier Hertfelder from FXStreet.com, a genuinely pleasant and thoughtful professional whose perspective brought interesting angles to our discussions.
Among the topics we discussed was Dollar Cost Averaging (DCA), you know, that classic “invest a little every period” strategy. Talking with sharp, open-minded people like Javier always inspires new ideas, so this morning I ran a quick test based on that discussion and some of my follow-up thoughts. So, this article is dedicated to Javier and the team at FXStreet.com, may we keep exchanging ideas that move the industry forward.
Can a Little More Patience Make a DCA Strategy Work Even Better for the Stock Investor?
At investingLive.com, we like to keep ideas practical and data-driven, and we like to keep you, the retail investor and/or trader reading this now, in our minds and at the center of what we do every day. As such, we need to keep it real for you. We are not in academics, this is real life stuff.
For this test, I used real S&P 500 (SPX) daily data, which I simply downloaded online, the same public data available to any retail investor.
The question was simple:
Would a patient investor who buys less often, but more strategically, end up ahead of someone who buys every single day?
The results say yes. To some, it would seem by a little and to others it would look like by more than you might expect.
The Two Stock Market Investing Strategies in Plain Terms
1. The Daily Buyer
Buys $100 of the S&P 500 at the open every single trading DAY.
Over the test period, that meant 907 trades, totaling $90,700 invested, growing to $126,677, a 39.7% gain.
2. The 4-Down Accumulate Buyer
Waits for four consecutive red days on the S&P 500.
Then, on the next trading day, buys at the open with all the cash saved since the last buy.
If 20 trading days pass, that becomes a single $2,000 buy.
Same total invested, only 38 larger trades, ending with $127,439, a 40.5% gain.
At first glance, 39.7 percent versus 40.5 percent doesn’t look like much, but that’s actually about 2 percent better relative performance on the same money.
But wait, it gets much better since we haven’t even added real-world trading costs yet. That will make the advantage even more visible.
Why Real-Life Trading Costs Turn a Small Gap into a Big One
In real life, daily buyers don’t place hundreds of patient limit orders. They simply hit “Buy” at the market open. Because if they don’t, they risk missing the trade entirely.
That convenience means paying a slightly higher spread each time. When you buy with a market order, you often pay a few cents more than the true midpoint price. It’s fast and easy, but it costs money.
Here’s what that looks like over time:
Each $100 market order might lose 10 to 30 cents to spreads or slippage.
Multiply that by 907 trades, and that’s around $90 to $270 gone quietly.
Add roughly $1 per trade for broker or platform costs, and the total friction easily reaches $900.
The 4-Down buyer made just 38 buys and likely paid about $40 total in comparable costs.
That’s a difference of roughly $860 in real trading costs.
Less trading means lesser cost. Much less trading means much lesser cost.
Once adjusted for that, the patient buyer’s edge grows from under one percent to about 3% to 5% better relative performance, simply by trading less and timing entries slightly better.
Quick note on that 3%-5% range: the advantage depends on real-life per-trade costs. The daily buyer made 907 trades vs 38 for the 4-down plan, so there are 869 extra trades paying spread and small fees. If each market order costs about 25–100 cents in spread or slippage, that extra drag shifts the edge from roughly 2.7% to 4.7%. If you prefer one number, a midcase of 50 cents per trade implies about 3.4% better.
Why Waiting for Four Down Days in the Stock Market Makes Sense
After a few consecutive red days, markets often reach short-term exhaustion. Traders exit, algorithms reset, and selling pressure fades.
Soon after, the market tends to bounce. Not always dramatically, but enough to give better average entry prices.
This strategy doesn’t try to call a bottom. It just buys after the selling rush, when prices are calmer and often cheaper.
That alone gives it a structural advantage over random or daily entries.
A Realistic Strategy for Real People Investing in the Stock Market
Most investors are not professional traders. They have jobs, families, and busy schedules. They don’t want to watch the markets every morning.
This approach is designed for that kind of investor.
You only need to check the market every few days, even twice a week is enough.
If you see four consecutive down closes, you buy the next morning.
If not, you do nothing and continue with your life.
It’s that simple. No constant screen time, no pressure, and no fear of missing out.
In fact, it’s easier, calmer, and more practical than the plan that required daily action, and it performed better too.
A Small Habit Change with a Compounding Effect for Stock Market Investors
Using real S&P 500 daily data, both strategies invested the same total dollars.
But the investor who waited for four consecutive down days ended up with roughly 3 to 5 percent better relative performance once realistic trading costs were factored in.
Same money. Fewer trades. Lower stress.
That combination works, not only in numbers but (probably) in real life.
I had to add the (probably) because I checked one period and past performance does not mean that this will repeat. There are no promises in this game, and I am not making any. But my sample checks out and it makes sense why it would. Some of you that have been counting candles can dig what I mean. Others can simply decide to keep an eye on this simple and effective potential from now on. Perhaps you don't need sophisticated, costly family fund managers or big banks with hefty fees that basically buy the SPX for you for a fee, perhaps you can beat them with this simple idea at investingLive.com
Educational note:
- This article is based on real S&P 500 data analysis conducted by me using daily SPX data that I simply downloaded online.
- It is educational content from investingLive.com and not financial advice.
- Past performance does not guarantee future results, and this strategy may not work for everyone.
- Always do your own research and invest responsibly.
