I think this question is common for most investor. It is mainly because there are no specified answer to this question. For one it is 'yes' but for someone else it's maybe 'no'. In this post it all about my opinion in this averaging down (some would say average down).
For someone new, averaging down is a technique (or skill??) that is developed to have a maximum benefit to an investor in market reaction (in hope). Some will say right, and some will say wrong. For me, there is no right or wrong. Both are right and both are wrong. Neither are truely right or wrong.
I have read years ago that Averaging Down is among 10 Common Mistakes of investors/traders. I also know some people who make huge profits with Averaging Down.
Before that, what is 'Averaging Down' actually ???
Averaging down occurs when you buy more of the stock when it's price going to south (down). Yes, instead of 'cut loss' or sell the stock that it's price is going down, you are buying more of the stock to make your average purchase price is lower than before.
What my opinion on 'Averaging Down' ?
Averaging Down is always wrong for a trader.
Averaging Down is also wrong when you buying a stock which you don't know it's company very well.
Averaging Down is also wrong when you buying on a spectacular.
So, everything is wrong.... when we should actually do the 'Averaging Down'.
Averaging Down for me is only for long-term investor and who called and dedicated themselves as fundamental investors.
When I use 'Average Down'?
I'm only using "Averaging Down' when I can pass this list check :
1) the company is good sound fundamental and their activity doesn't change
2) the drop of prices is nothing related to their company activity or
3) temporary drop in profit which I think that company can pull up back
4) temporary recession or depression
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