Averaging Down or in simple terms loss averaging as well as Averaging Up or in simple terms profit averaging are two popular strategies for adjusting the share prices. In averaging down you will be buying the shares which are continue to go down so that your average price is less. In averaging up you will be buying the shares which are continue to go up so that the average price will be more but you will be in profit.
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Now these two are popular strategies and most people follow any of them. But what I have seen most of them actually does averaging down and very few does averaging up. The problem is averaging up is much better option than the averaging down. In the averaging down, you will continue to buy the stocks if the stocks continue to go down. So that your average will be down.
Now the problem with this approach or strategy is that what if the stock never goes up, and even if it goes up you will not be in great profit. As soon as you reach your average price and get some profit you will come out of the trade.
Now if we compare that with the average up, it is much better strategy than the average down. You have the profit in the stock and since the stock is going up you are betting in the good stocks which will continue to rise. And thus you will be in profit. But what we have to follow is that when we wil average up we should not deploy all our capital at once.
For averaging up also, basically we will continue to buy and when the stock loses momentum we can come out of the stock and get the profit at once. This is a sure shot way of getting the profit rather than averaging down and thinking of stock going up.
