Averaging Down Trading Strategy (Statistics, Facts, & Historical Backtest)

If you trade stocks or any other financial market, you will often be confronted with that temptation: to buy more when the price goes lower. On the one part, you may have a cheaper entry price, but on the other hand, you may actually be doubling down on a losing trade. How do you approach the averaging down trading strategy?

Averaging down is a trading or investing method in which a stock owner buys more shares of a previously bought stock after the price has fallen. The main idea behind the average down technique is that it lowers the average purchase price, so when prices rise, it doesn’t take as much of an increase for the investor to start realizing a return on their investment.

In this post, we look at the averaging down trading strategy. We finish the article with a backtest.

Related reading:- A library of quantitative trading strategies