When to add to your position when trading the market:

I have not met any trader who has not once in their trading career used the strategy called averaging down. It is when you add to your position at a better price than the original thereby making your average entry better. It sounds smart, as if the stock was a good buy at 20 it must be a great buy at 15. It also compliments the old saying; buy low, sell high. There is just one thing; adding to losing trades is a one way ticket to failure! By adding to losing trades means you will ALWAYS add to all the losers and only some of the winners. The best winning trades are the ones that take off immediately and you will not be able to add to these trades. So the averaging down system sounds smart on the surface but the truth could not be any further from that. [Read more...]