Kind of late now, but I was on vacation.
Re the OP, I like to buy on the way down as well. Usually with volatile shares, like vnq or frn, that have fallen 10% to 15% below the lowest priced shares I currently hold. Yes, that puts the AA out of whack until the extra shares are sold. I only do this if I have some cash around that I'm not going to use for more than a year.
The simple trick after you buy the shares is to sell shares at a net gain as the price increases, keeping in mind that you might want to harvest tax losses as well.
For example:
You already have 1000 shares in your AA priced as follows: 250 shares at $50, 250 shares at $60, 250 shares at $70, and 250 shares at $80. Your AA is balanced correctly with these 1000 shares.
But, the price of those shares then hits $40, so you buy another 250 shares with spare cash, unbalancing your AA.
Now you need to wait, the hardest part, until the share price rises.
What I do is wait until the share price is back up to $50. At that time you can sell, say, the 250 shares that you originally bought as part of your AA for $50. That returns your AA back to normal (1000 total shares, same as originally), but now you have made $2500 extra cash. Since you sold your $50 cost basis shares for $50 there is no (immediate) tax hit. Eventually you will pay taxes on an extra $2500 in capital gains because your tax basis is now $40 instead of $50 for 250 shares.
As an extra bonus, you can sell the 250 shares priced at $80 instead of the shares priced at $50. That gives you the same $2500 cash gain, but also a capital loss of $30 per share for those 250 shares. That will lower your taxes for this year. Eventually you will have to pay them back, but maybe not for a long while. However, watch out very carefully for wash sale problems. If your sale for a loss is within 30 days (before or after!) of a buy (or reinvestment!) the tax loss will not be allowed. However, it will not be lost either, just delayed until shares are sold again.
This is an entirely mechanical process, once you decide to buy the extra shares. You don't have to make any predictions or judgement calls.
So:
#1 Look at the price(s) at which you bought your extra shares. Sell the extra shares at some price above that buy price(s). That will ensure you don't lose money at least.
#2 Look at the prices of your other shares already in your AA. Sell those more expensive shares when the share price reaches the price you bought those more expensive shares at. Replace them in your AA portfolio with the lower cost shares you purchased during the price drop. It's like a do-over, in the example you originally bought shares at $50, you bought them again at $40, the price rises and you sell your $50 shares for $50. Your "mistake" in buying the shares at $50 instead of $40 is wiped out!
#3 Consider selling higher priced shares for an additional tax loss, if that doesn't result in a wash sale.
And last, there is always risk in doing any of this. I'm usually comfortable doing this with index funds that can be expected not to go to $0. I have done it with stocks like WorldCom that did go essentially to $0, the "catching a falling knife" problem. But I have done well with it too. I think waiting for share prices to go up is safer than waiting for them to go down, but you could still be waiting for a long time. Take FRN as an example. You can adjust your risk by insisting on a wider price gap when buying your replacement shares, buying fewer of them, or not doing this altogether.
