Averaging down

Don’t do it! I have often written that the key to profitable trading is to limit your losses with the use of “stop-loss” orders. As a result, the thought of averaging down should be a non-issue as you shouldn’t even have the opportunity, because you should have sold that dog before it got to the level where averaging down is tempting.

Successful professional traders average UP, not down. They become successful pros because they added to winners, not losers. And speaking of averaging UP, there’s a right way to average up and doubling your position is not it. Better you should add 1/2 your original stake. If you already own 1000 shares and want to bolster your position, you buy 500 additional shares. If it continues to rise and you again decide to add more, you add 250 shares, etc. And please remember that shares that have been added to an existing position now require that you immediately adjust your “stop-loss” limits and sizes.