How to Average Down (Safely)

One of the golden rules of trading and investment is to never average down, despite the fact that logically this should lower your average purchase price thereby enabling you to break-even much sooner. As I see it, the problems with "averaging down" are twofold:

1) If you're not careful, averaging down on your falling stock positions can attract all of the cash away from your profitable positions; and when those averaged-down stocks go bust, you've lost it all!
2) The very notion that with a lower cost base you can "break even much sooner" means that you will probably do just that -- i.e. exit at break even -- as soon as you can. So you risked all of your money for the reward of zero profit. [READ MORE]