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Day Trading Series! #1: Averaging Down~~~Mar 5, 2025

Day Trading Series! : Averaging Down

I’m a bit antisocial so I like to disappear for long periods of time but I really love trading. 

So.......🩷(⁠ ͡⁠°⁠ᴥ⁠ ͡⁠°⁠ ⁠ʋ⁠)

I thought it would be fun to do Day Trading Series, where I’ll break down different strategies to help you make some money~~~🤸🏽‍♀️

Day trading can feel overwhelming at first, but if you take it step by step, it gets easier. In this series, I’ll cover specific techniques that can help you improve your trading, reduce your losses, and maximize your gains.

Today's topic? Averaging Down—one of my personal favorite strategies!🍭🧃

What is Averaging Down?

Averaging down is when you buy more shares at a lower price when a stock drops, which lowers your average cost per share.

A lot of traders panic when a stock falls, but instead of selling for a loss, I wait for it to bottom out (or get close to it) and then buy more.

That way, when the stock starts going back up, my break-even point is lower, and I can turn a profit faster.

How Averaging Down Works (A Simple Example)

Let’s say you buy 100 shares of a stock at $10 per share.

🩷 Your total investment: 100 x $10 = $1,000

🩷 Your average price: $10 per share

Now, let’s say the stock drops to $8.

Instead of panicking, you decide to buy another 100 shares at $8.

🩷 You now own 200 shares total

🩷 Your total cost: $1,000 (from before) + $800 (new purchase) = $1,800

🩷 Your new average price: $1,800 ÷ 200 shares = $9 per share

Now, your break-even price is lower than your first buy-in price.

Why This Helps

If you never averaged down, you’d need the stock to go back to $10 just to break even. But because you averaged down to $9 per share, now you only need the stock to go back to $9 to break even—and if it rises above that, you’ll make a profit faster.

Let’s say the stock bounces back to $10.

🩷 If you never averaged down, you’d be at break-even ($10 buy-in price).

🩷 But since your new average is $9, you’re now up $1 per share on 200 shares.

🩷 Total profit: 200 x $1 = $200

Why I Don't Trade with My Whole Account at Once

A big mistake traders make is going all in on their first buy.

If I had used my entire account on my first entry, I wouldn’t have any money left to average down.

This is why I only use a portion of my account at first—so if the price dips, I have extra money to buy at a better price.

Another Simple Example (For Even More Clarity!)

Let’s say you want to buy ice cream cones that usually cost $2 each.

🍦 You buy one cone for $2.

🍦 The store has a sale, and the price drops to $1.

🍦 You buy another cone for $1.

🍦 Your total cost is now: $2 + $1 = $3.

🍦 Your average price per cone is $3 ÷ 2 cones = $1.50 each.

Now, let’s say the store raises the price back to $2.

🩷 If you only bought one cone at $2, you'd break even.

🩷 But since you averaged down to $1.50 per cone, you now have a profit!

This is exactly how it works in stock trading.

When Averaging Down Works Best

🩷 When a stock is falling because of short-term panic, but you believe in the trade.

🩷 When you’re confident the stock will reverse based on technical indicators.

🩷 When you have enough money left to keep buying lower.

Averaging down is a strategy that requires patience and discipline—but when done correctly, it can help you recover losses faster and even make more money when the stock goes back up!

Final Thoughts

Averaging down is one of my favorite trading strategies, but it’s not for everyone.

The key is to:

🩷 Not use your full account size on the first buy.

🩷 Know when to stop averaging down (sometimes, a stock keeps dropping!).

🩷 Only use this strategy on stocks you believe will recover.

This is just one of many techniques I’ll be covering in the future!