Average Down
Adding to a losing position to lower the average entry price, which also raises risk.
Quick answer
Average down means adding to a losing position to lower your average entry price.
Definition
Averaging down is buying more of a position that is falling to reduce your average entry price. It feels logical but it adds risk exactly when the trade is proving wrong. It only helps if the price eventually turns, so it is a conviction play, not a safety move.
How It Works
- It lowers the average entry cost
- It increases the size you have at risk
- It only works if the price turns back
Trading Tips
1
Set a clear level where you stop averaging
2
Never average down without a defined invalidation
3
Know that bigger size cuts the other way if you are wrong
Related Terms
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