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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.