Why You Should Never Average Down

Why You Should Never Average Down

You might have heard the saying “losers average losers”? Well it’s one of those common sayings that is actually true. You see stocks are not like houses and they can go to zero. Yes that’s right!!!! ZERO.. Meaning your whole investment is gone. This rarely happens with things like houses although it can.

You might see someone bragging online about making a 300% return in a short amount of time “investing” in one stock. They are most likely gambling unless they are a professional day trader. You have only heard from them cause they need to brag as part of their ego and you won’t hear from them if the “investment” tanks and either goes to zero or the stock just dies a slow and painful death for many years. You will just see their persona will probably change and they will become bitter and tell you the share market is risky and not to “play” in the market. We at Share Trading Guru always recommend you always stay in control of your trades and/or investments and always have a “what if plan”.

What If Plan

What’s A “What If Plan”?

This is when you document your plan for a trade and/or investment prior to taking a position. And it doesn’t mean the plan is, “I am going to buy to get rich and buy a lambo”. That is not a plan, that is gambling and you should leave our site now and look up gamblers anonymous meetings in your local area and start attending them asap.

What a real plan involves is apart from an entry plan, possible exist plan and management of the trade/investment style you need to also ask yourself the question, what if the trade losses 50%, 80% or even 100%. That way you know your ultimate risk. Many stock gamblers don’t do this. They will take a single position in a hot stock that everyone is talking about, cause everyone is already in profit on the stock and bragging about it. The gambler then gets nervous when the stock drops below their purchase price and they tell themselves, “it will bounce”. Or they blame others like “it’s the shorters (short sellers) fault”. Sure it is… For every trade their is a buy and sell. Nobody can move a stock for a good period of time beyond intraday spikes and dumps, which often only last seconds. These gamblers have an effective “stop loss” of zero but they don’t want to admit it.

Say You Plan To Average Down

So you have decided to ignore our many years of professional advice and to be a gambler and average down on a stock you have purchased. All this says is that you have an ego problem and you can’t admit you were “wrong” on the trade/investment. Ego has no place in trading/investing and needs to be left at the door, or the market will eat you up and spit you out the door. Any trader/investor that has been around for a good amount of time has lost all their ego and the market has “humbled them”. It’s funny how that happens. Do something wrong a few times and eventually the market will humble you though your bank account balance. Sometimes you average down and it works. This can be your own worst enemy. You might even be able to profitably average down a few times but in time the market is always right… And you will be broke!!!

You will see some people online saying things like “I want the stock to go down more so I can buy more cheap”. This is fully psychological and they must have a big ego and can’t accept defeat. These people will be broke soon enough so just share this post with them and if they don’t read it or acknowledge it then you have done your part to “better society” and just ignore them and don’t waste your time trying to tell them otherwise. Please don’t say to them “I told you so” when they do blow up though. Just know that they will know you tried to help them when you did.

If you have enjoyed this post please share it with someone who could benefit from it prior to them going inevitably blowing up their trading/investment account. Good luck out there and stay safe in the markets.