Message Font: Serif | Sans-Serif
No. of Recommendations: 3

I know this one has been beaten to death but I just thought I'd add my nickel in here (it's up from 2 cents due to inflation worries.)

Averaging down is NOT a bad thing but it is NOT something done while day-trading or short-term trading IMHO. Two of the three LT ports I have use montly purchases of share blocks and in those cases, that can be said to be averaging. In some cases it's averaging down and in some cases it's averaging up but the way I look at it is accumulation as opposed to averaging. I'm attempting to accumulate a large number of shares in those specific companies for a variety of reasons.

As for averaging in DT'ing or STT'ing, I don't do it although what I do could be construed as averaging if one wanted to. Take LINK as an example. I had it at a significantly higher price than it is today and it dropped below my stop AH. I decided to hang on to it instead of letting myself be stopped out well below my stop-loss because I believe in the companies future, especially with the X-Box coming up as well as other deals they have. I stuck it in my LT port at that point.

I bought more at specific points below 6 and below 5. Was I averaging? Not from my perspective. I was making separate trades that had nothing to do with my original trade. I ended up making more than I would have lost had I sold LINK at that point and LINK eventually got back above my original buy in price and I moved my stops up and eventually got stopped out completely.

Did I average down? Nope. I made a bunch of separate trades while still holding a core block of LINK shares. I'm now buying LINK shares in one of my LT ports (monthly buys as I think it's more advantagious to do it that way) and will move stops up when it moves back up. THAT may be called averaging.

I have an odd way of looking at averaging though because I treat every single transaction separately. If I buy 100 shares of XYZ at $20.00 and it moves down to $10.00 per share and I then buy 100 more shares, my average cost would be $15.00 per share if I looked at it that way. That way of thinking would allow me to sell above $15.00 and consider it a good trade.

I don't think that way however. Say XYZ went to $16.00 per share and I sold. Most would say I made a buck profit. I would say I made a $6.00 profit on one trade but lost $4.00 on the other. Yes, it amounts to the same thing but in my mind I had a loser and a winner instead of just a winner. That makes me work harder to keep from having those losers.

Anyway, that's probably real confusing as this is kind of stream-of-consciencousness stuff but what the heck, it's FRIDAY!! :)
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.