Average Down
Adding to a losing position to lower the average entry price, which also raises risk.
Average down means adding to a losing position to lower your average entry price.
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
Set a clear level where you stop averaging
Never average down without a defined invalidation
Know that bigger size cuts the other way if you are wrong
Average Down Example
Say you buy EUR/USD at 1.0900, it falls to 1.0850, and you double at the lower price for a 1.0875 average. Price recovers to 1.0875 and you escape flat, feeling clever. Had it slid to 1.0800, the doubled size would have doubled the damage.
How Traders Use Average Down
Average down only with pre-planned scale-in levels inside a larger thesis, never to rescue a loser emotionally. One add maximum, same total risk, hard stop below. Unplanned adds are hope buying inventory.
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