You see the problem is not having a solid entry strategy when averaging down. You can't just buy all willy-nilly at any ol price. A combination of the RSI, volume indicator, price action and support levels must be a factor in your entry decision.
That's the general idea, yes. A note of caution though - it works as long as the (down)trend is intact. After the bottom or high have been reached the strategy does backfire to a degree and it's up to the investor to decide when to switch directions.
To me it boils down to DD if your extremely bullish based on DD then averaging down makes sense. If you simply caught a case of fomo then averaging down is a losing proposition. Another thing to do is to treat every trade individually instead of an average. Also selling puts in order to average down and covered calls at the same time reduces your cost basis extremely.
I have to disagree about it always being a bad strategy. If someone is trying to buy at the bottom of a trade and prices are already oversold near a resistance, it’s not a bad idea to place 4 orders at 25 shares a piece, than one order of 100 shares. Sure the average may be higher than timing the bottom, but it’s a good way to find a point near the bottom.
I’m going to give a bit of pushback and play devils advocate a bit here. If you’re averaging down with a fixed stop loss and a fixed # of contracts/shares/positions going into the trade, I don’t see why that would be bad. Let’s assume your psychology is on point too, and this is just part of your trading plan. Also, instead of using this on an individual stock, what if you were trading something bigger such as a CFD on the s&p500? This “averaging down” strategy may be better suited for ETFs/funds of a basket of well known securities.
What about building down a price (with a set number of shares assigned per stock and per purchase) over a period of weeks or months during a recession?
Longer term the idea of pound cost averaging has worked well for investors - for example buying a monthly $ amount smooths out the ups and downs of markets. So if it was an index tracker this would make more sense that in an individual company with the risk that the individual company may not perform well after a recession.
@@Capitaltrading Thank you, and is each recession exceptionally unique or can I look to how a company performed in 2000 and 2008 to gauge how they'll fair in 2020? Along with other indicators and general news, that's how I'm determining my entry-price.
I don't think it's necessarily bad when you buy low risk dividend earners. I plan to average down on most of the holdings in my small portfolio next recession. I only buy fundamentally sound stocks. I don't speculate. That's why I don't touch tech or pharmaceutical companies.
what should I do?, buy an ETF AFTER its gone up HOPING it goes higher? or buying AFTER its gone down? I have lost TONS of money buying AFTER the ETF has gone up!. Ive made huge money averaging down AFTER the ETF has gone down 5%-10%+. this works IF you are trading ETF's AND you are trading/investing for 6+ month time periods, this does NOT work trading a 2 minute chart daytrading. daytrading is for fools.
You see the problem is not having a solid entry strategy when averaging down. You can't just buy all willy-nilly at any ol price. A combination of the RSI, volume indicator, price action and support levels must be a factor in your entry decision.
You should check out our analysis videos, they're almost the same as your approach (except for the volume indicator).
if you're right long term averaging down is a perfectly valid way to enter a dip because you cannot spot the bottom.
That's the general idea, yes. A note of caution though - it works as long as the (down)trend is intact. After the bottom or high have been reached the strategy does backfire to a degree and it's up to the investor to decide when to switch directions.
To me it boils down to DD if your extremely bullish based on DD then averaging down makes sense. If you simply caught a case of fomo then averaging down is a losing proposition. Another thing to do is to treat every trade individually instead of an average. Also selling puts in order to average down and covered calls at the same time reduces your cost basis extremely.
Thank you very much for your support! I appreciate it! ❤
Isn't the whole idea of the "trend", buying into a "falling stock" or a "rising stock" the actual bias?
I have to disagree about it always being a bad strategy. If someone is trying to buy at the bottom of a trade and prices are already oversold near a resistance, it’s not a bad idea to place 4 orders at 25 shares a piece, than one order of 100 shares. Sure the average may be higher than timing the bottom, but it’s a good way to find a point near the bottom.
I’m going to give a bit of pushback and play devils advocate a bit here. If you’re averaging down with a fixed stop loss and a fixed # of contracts/shares/positions going into the trade, I don’t see why that would be bad. Let’s assume your psychology is on point too, and this is just part of your trading plan. Also, instead of using this on an individual stock, what if you were trading something bigger such as a CFD on the s&p500? This “averaging down” strategy may be better suited for ETFs/funds of a basket of well known securities.
Good point! I can see why this wouldn't be a good thing to do. Cheers, Rob.
What about building down a price (with a set number of shares assigned per stock and per purchase) over a period of weeks or months during a recession?
Longer term the idea of pound cost averaging has worked well for investors - for example buying a monthly $ amount smooths out the ups and downs of markets. So if it was an index tracker this would make more sense that in an individual company with the risk that the individual company may not perform well after a recession.
@@Capitaltrading Thank you, and is each recession exceptionally unique or can I look to how a company performed in 2000 and 2008 to gauge how they'll fair in 2020?
Along with other indicators and general news, that's how I'm determining my entry-price.
I don't think it's necessarily bad when you buy low risk dividend earners. I plan to average down on most of the holdings in my small portfolio next recession. I only buy fundamentally sound stocks. I don't speculate. That's why I don't touch tech or pharmaceutical companies.
I like to buy good products when they go on sale writhed it’s socks or stocks
what should I do?, buy an ETF AFTER its gone up HOPING it goes higher? or buying AFTER its gone down? I have lost TONS of money buying AFTER the ETF has gone up!. Ive made huge money averaging down AFTER the ETF has gone down 5%-10%+. this works IF you are trading ETF's AND you are trading/investing for 6+ month time periods, this does NOT work trading a 2 minute chart daytrading. daytrading is for fools.
Bull
AI looks really helpful in that case