What is Averaging Down?

Stock Market Terms explained as simple as possible

QUICK ANSWER

Averaging down is what inexperienced traders do when they bought a stock too high and want to minimize their losses, which usually leads to an even more significant loss.

Why averaging down is bad

Averaging down is usually a sign that you have no real plan on how to trade correctly. If you have a solid plan, averaging down would only be an ok thing to do when the price is still not past your stop-loss price. This behavior all leads to a total emotional trade where more and more money gets thrown at the stock until the loss is so significant that the account value is approaching $0 in no time.

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