Weren't you the guy who said S&R levels didn't exist? I should have said the market doesn't know where you entered the trade. They always recover except when they don't. They can stay at a reduced level for some time tying up your capital. They can have a reverse split. very few recover from that. They can be taken over in an all cash deal which leaves you with a loss. And of course chapter 11.
I said how do YOU explain. Also the market DOES know where you made the trade because it is all logged....how else is your brokerage going to take a counter trade? I already demonstrated how buying SPY at the top pre-covid and averaging down to the bottom performed much better than buy and hold. Here found it. So if you bought and held you would have been up $1600 a year later. If you got stopped out you would have 0. If you averaged down you would have
Really; your broker isn't the market and your broker doesn't care if you are underwater. Thats a woulda,shoulda, coulda senario. I don't disagree averaging down would have beat buy and hold, but taking a small loss and waiting for the recovery might have outperformed averaging down.
How? By the time price recovered you would have already been up 42k by averaging down. With indexes there are ZERO scenario's averaging down doesn't out perform...except loading up at the bottom of course but good luck with that.
Here is how the senario plays out if you trade. Using your numbers the trader starts with 205k which equals your total investment of 500 shares at 410 The trader risks 3.5% of his capital Buy 428 shares @ 479 get stopped out at 462.23 takes a loss of 7175 leaving 197836 of capital. Buy 463 shares @ 427 get stopped out at 412.05 for a loss of 6919.63 leaving 190781 of capital Buy 464 shares @ 411 get stopped out at 396.61 for a loss of 6675 leaving 184029 of capital Buy 484 shares @ 380 gat stopped out @ 366.70 for a loss of 6437 leaving 177482 of capital Finally buy 502 shares @353 with a stop at 340.64 You have 500 shares @410 The trader has 502 shares @ 353
Oh by using stops ..ok you're assuming that you got the bottom on the last trade and weren't stopped out so your entry would have been higher most likely. Fees are minimal but you don't gain any tax break because this would be considered a superficial loss... So you are realizing a loss of 35k whereas I am not. Either way you're on the hook cuz you're not going to walk away from 35k LOL... So there's no difference. I mean, I guess you could keep the loss on spy and buy shares of iwm or something, but that could get a bit sketchy with taxes. You can look it up. I forget what the rule is for same sector.
I'm not assuming anything I'm taking your trades. Price never got to my stop. After that there has been no reason to sell. Sure I'm taking a 35k loss but at the end of the day I have 502 shares at 353 and you have 500 shares at 410. Pick number where we close the trade and the trader is ahead of the game. Even after taking a 35K loss trading ends up 27.8k ahead of the average down scenario. What do you mean I'm not going to walk away from a 35k loss? Why wouldn't I? My capital drawdown is less than 20%. Actually quite a bit less than that if you consider my whole portfolio.