Understanding Stock Averaging
Stock averaging is the practice of buying more shares of a stock you already own at different prices. This results in an average cost that determines your profit/loss.
Average Price Formula
Average Price = Total Investment / Total Shares
Averaging Down vs Averaging Up
| Strategy | When to Use | Risk |
|---|---|---|
| Averaging Down | Stock falls but fundamentals intact | Higher if stock keeps falling |
| Averaging Up | Stock rising, confirming thesis | Lower, trend is favorable |
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Caution
Never average down just because a stock is "cheap". Only buy more if you'd buy the stock at current price even if you didn't own it.