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Until recently, my understanding was that "crab investing" is the best strategy for an "everyday investor":

Crab investing: Every pay check, buy (and hold) a diverse range (index fund) of stock, irrespective of if the market was up or down.

Everyday investor: Someone who's day job is not investing, and retirement is 10+ years off

However, the other day, I heard that the "don't catch the falling knife" strategy may be better in the long run:

Don't catch the falling knife strategy: Each paycheck, if the closing price yesterday was higher than the month before then buy. Otherwise put the money in a savings account until the next month. When the next month rolls around, repeat, putting all of the saved money in as well.

On the face of it, it looks like you will miss out on some gains due to short term volatility, but will be making the best of long term market downturns. This sounds good in theory, but:

Does the "don't catch the falling knife strategy" work better in practice than simple "crab investing"?:

Is there an ideal period (weekly, monthly, 2 monthly, etc.) to use?

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    The short answer is that any investing strategy that gets you more shares at a lower price rather than fewer shares at a higher price is the better strategy. What will make the strategy work is the market cooperating. If it misbehaves, not so much. – Bob Baerker Mar 6 at 6:15
  • @BobBaerker I guess the question then is "In general does it tend to behave or misbehave?" – DarcyThomas Mar 6 at 9:22
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    Does this sort of answer the question? ofdollarsanddata.com/why-market-timing-can-be-so-appealing – stannius Mar 6 at 9:22
  • @DarcyThomas - I guess the answer then is how good you are at behaving or how bad you are at misbehaving (g). You asked if there is "an ideal period [weekly, monthly, 2 monthly, etc] to use?" What works best in one time period may not work best in the next time period (1, 5,10 years, whatever) so yes, there is an ideal plan but ideal is only known in hindsight. From decades of investing and trading I'd offer you this... Buying is a hard thing to do when you feel the worst about the market. Do it. – Bob Baerker Mar 6 at 13:08
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Interesting idea. Don't catch the falling knife strategy sounds like you're buying while the stocks are appreciating (e.g. they are trending up) - which seems like the opposite to the Warren Buffett advice:

Be fearful when everyone else is greedy. Be greedy when everyone is fearful.

I think Crab investing is the way to go, dollar cost averaging spreads your risk.

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  • Great answer, except for the second half of the last sentence. Dollar cost averaging has nothing to do with this question or answer. There is no large lump sum to decide what to do with. – Kevin Sep 15 at 19:40
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I created a simulation to test the performance of cash, crab, and "falling knife" strategies in a variety of random market conditions. What I found is that in a rising market, the "crab" strategy outperforms both "falling knife" and "cash". In a roughly flat market, all three strategies are roughly the same performance. In a falling market, "cash" outperforms "falling knife" which outperforms "crab".

The basis for long term investing is that - over time - the market trends is up. In such a case, the "crab" strategy will outperform, regardless of short-term movements of the market. Assuming you could time the market, the "falling knife" strategy is still outperformed by cash in a down market.

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