Risk and psychology
Averaging down
Definition
Buying more of a position that shows a loss, to lower its average cost.
Example
Say you buy 200 shares at $30.00, the stock falls to $24.00, and you buy 200 more. Your average cost drops to $27.00, but you now hold 400 shares. If the slide continues to $20.00, the loss is $2,800 instead of the $2,000 the first 200 shares alone would have lost.
Hypothetical numbers, for illustration only.
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