While there is NO fix formula that fits everyone, there some rules that I follow when I start to take positions.
Do you need to be a chart analyst expert or proficient to minimize risk and maximize opportunities? The answer is NO.
A simple chart will give you an idea the past and the present. The future will be a guess that only market unfolds its actions. The past will give you an idea WHAT if the worst happen, what is your risk? What if the best happen, what are your rewards.
With your current or present situation, one can assess the risk reward when one take action. Assuming you are NOT an expert in deciphering the chart or a reliable system to guide you. What should a reasonable strategy be for stocks?
My normal SOP is I divide my capital into 2 (50:50). I call them A50 and B50.
I will use my A50 to buy ratio 1 : 2 : 2
I am assuming the market is falling and the trend has not changed but your are excited to get your dreamed stocks.
How about price levels? The first entry normally I move when it is 30% from the peak.
Each buying has to be 20% away from each entry. By time the last (2) is used the price would have fallen 40% from your entry when you use up 50% of your capital. (A50)
How about B50? I will wait for a simple confirmation for the falling trend to end before I dip into B50. This time it will be reverse 2 : 2 : 1 and the 10% price difference per entry instead of 20%.
This should bring your weighted average lower.
What about those who are proficient in basic trend reversal chart analysis?
They must be able to track the trend for reversal setup and change confirmation before committing your $$$.
A discipline TREND follower WILL NOT and NEVER COMMIT unless the trend has confirmed it has changed.
Assuming you want to be a HYBRID with a little of excitement to prematurely strike before the trend reversal changes, than use maximum 30% of your funds.
A classic typical trend follower will commit at 50% of the fund when the reversal happen and continue to add when the trend move in the direction anticipated.
What about me? Over the years, I have developed and refined my own system to track the market trends in term of the ending of the current trend, the set-up of a new trend, the confirmation of trend change and the ending of the new trend, the set-up of the next trend and the cycle repeats.
When I read my system as the ending of the existing trend, most likely, I would have committed about 20% of my funds.When the trend reversal is confirmed, another 50% will be utilized leaving 30% cash. As it progress, my last 30% will be used.
The trend has some fixed characters or behaviors with some temporary abbreviations between the start to the ending of a trend. I capitalize on my trend behavioral knowledge to minimize risks and downsides when I buy
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