FOR TRADERS --- AVERAGING DOWN ON THE WAY UP
Much has been written and discussed on the subject of averaging down , but this invariably refers to averaging down on share prices that have dropped
Because of tax implications what I am about to put up is not for the long term investor but for the trader
I have been taking an entirely different approach to averaging down , one that I have found to be much more successful and rewarding --- that is averaging down on the way up , or averaging down on winning positions
It is generally not too difficult and it works , especially on fairly volatile stocks
To demonstrate , one company that I used it on very successfully was Oxiana (OXR )
(the figures will only be approximate , but they will be perfectly good for explanatory purposes )
Firstly I purchased shares at about the low 80c mark
When they reached just on $1 I sold feeling that they would retrace somewhat and they did
This gave me the opportunity to re purchase at prices averaging just under 80c
I then sold at prices from just over 90c to just over $1 at which point I decided that they were fully priced
I would have re purchased at about 90c but they did not retrace that far
The overall result was that I came out with a rather healthy profit , a far larger profit than I would have achieved had I simply purchased at about 80c and sold at about $1
Conclusion
It is far better to average down in the manner explained on WINNING trades and steer clear of averaging down on losing trades --- quit them quick and move to winners
I am not trying to blow my own trumpet here ( I have losers too ) what I am trying to do is promote healthy discussion on differing trading techniques
If anyone else is doing something like this I would like to hear from you
All thoughts and ideas will be greatly appreciated