You enter the markets with an amount each time.
That’s your selected quantum.
The idea that’s being discussed here is as follows.
Enter the market as many times as you want.
Just do one thing before that.
Adjust your quantum level to a point where it doesn’t pinch you, and…
… such that any entry mistakes make themselves felt only minimally, seen from an overall perspective.
In other words, keep your quantum of entry small.
Also, keep it constant, so that overall errors and benefits are able to average out in the long run.
Let’s get some picturization into play, to elucidate the concept.
Let us assume that you wish to buy stock X for the long term, and you’ve decided upon staggered entry, many times, with quantum Y each time.
You enter with one quantum Y on day A in the morning. By late afternoon, you are disappointed to see that the price has moved 5% against you. Happens. You start wishing that you had waited till late afternoon for entry. This can be classified as a random entry error through no fault of yours. Such random “errors” keep happening all the time in the markets. Get used to them.
Because your quantum Y was small, your “error” was also small. That’s the point being made here.
You are going to enter with quantum Y many times. Sometimes, immediately after entry, price might move in your favour. There might be lesser slippage. You might get a gap-down entry. You might enter after a big correction. Overall, whatever goes in your favour gets written off against all “errors”, such that in the long run, over many entries, the effect of errors is nullified.
Well you got me there. Nullified, I say. Then you ask what the entry error minimalization talk was all about, when it would get nullified in the first place.
Which is when I ask that what was it that would lead to nullification?
Many, many entries, right?
What has preserved your capital enough to last for those many, many entries?
A small entry quantum.
Also, psychologically, you know that your small quantum translates into a small potential entry error for you. So, your psyche is all geared up and raring to go. It is not afraid of entry, or of the error you might make upon wrong entry.
To sum up, at first, a small quantum works in your favour because it causes lesser potential entry error, seen as an amount.
Then, because your entry quantum is small, your capital lasts for many, many entries, which is when one can start speaking of entry error nullification because of evening out.
Whichever way you look from, it is the small entry quantum that works for you.