the myth of averaging down for traders

I don't mind paying 10 dollars for a 20 dollar stock but I hate owning a 10 dollar stock that I paid 20 dollars for.

 

+1. Well said

 

I know what you are saying but paying $10 for a stock that once was $20 is not that.

History is just that.

 

It can be a counterproductive strat at times. Plenty of instrance where I kept averaging down on the NQ and it just kept retracing. Ofc, it goes back in the direction eventually but not until it stophunted my position.

 

I'm aware of that. I perfer to pay $10 for a stock that is on it's way to a new high of $20 and then moving up.
I don't want to pay $10 for a stock that used to be $20. Granted I would make the same amount with both stocks, but something occured that caused investors to reduce the perceived value of the stock to drop and that could happen again.
I'll leave the "If I liked the stock at 20, I'll like it more at 15 and love it at 10" to the value investor who is content to tie up their capital for a long time.

 

Oh ok, that's different. I didn't read your original post that way.

 

This. A value investor would do exactly that

 

Amen Broham! lol
"I'd rather be out of a good trade wanting in, than in a bad trade wanting out." Burmashave

 

Which is good if you're able to calculate the value. A lot of investors believe that stocks will always return to their former glory. Although that may be the case for the indexes, it doesn't hold true for individual stocks.

 

How about a more nuts and bolts example…Lets say that you calculate support at some important MA, area of trendline support,etc, but the underlying is beginning to catch a bid, so you determine that you will put half of your position on here and then reserve the other half just in case there is a flush down to your ultimate area of support…technically, this would be an “adding to losers” scenario, but practically its a means to gain exposure in an “area” of support where other traders are probably also stalking bids, but the “algo’s” or whomever else is going to front run the buying and the ultimate support area may never be tested before it embarks on a significant move higher…this literally happens each and every week (and vice versa on the short side)