How to average down in the stock market
The stock market is well known for extreme price swings and the Covid-19 bear market will go down as one of the biggest in history. But even with the beating some portfolios have taken investors can use a downtrend to lower the break even of stock holdings. Here's how.
Ideally, stocks could be sold as soon as a sell signal is detected. However, the reality is some investors will ride a stock down no matter how far it falls. Whether it's a buy and hold philosophy or an attachment to a stock an investor can undertake a strategy to not only reduce the impact but accomplish the following:
lower the break even point.
provide some relief to anxiety associated with big sell offs.
Take advantage of market declines
Here's one strategy with illustration on how it works. Let's use an example of a stock currently at $50 mired in the midst of a down trend. We own 100 shares of our stock. Here's how we manage the downside to make more on the recovery later.