AVERAGING DOWN

Averaging down is an investment strategy that involves buying additional contracts of an asset when the price drops. This way, the investor increases the size of their position at discounted prices. The averaging down strategy is highly debated among traders and investors because it can either lead to huge losses or great returns. Nevertheless, averaging down is often used and favored by long-term investors and contrarian traders. With careful/proper risk management, averaging down can cover losses and magnify the returns when the asset rebounds. However, the main concern for a trader is that it can be hard to identify the difference between a pullback or the start of a new trend.

HOW DOES IT WORK 

Averaging down is a method to lower the average price at which the investor buys an asset. A lower average price can help investors come back to break even quicker and, if the price continues to rise, get an even bigger upside and thus increase the total profit from the trade. For example, We buy 100 shares at $60 per share, a total investment of $6000, and then the asset drops to $40 per share; in order to come back to break even, the price has to go up 50%. (($60/$40) – 1)*100 = 50%.

The power of Averaging down comes into play if the investor buys additional shares at a lower price, like another 100 shares at $40 per share; the total investment is ($6000+$4000 = $10000). The average price for the investment is now $50. (($60 x 100) + ($40 x 100))/200; in order to get back to break even, the price has to rise 25% ($50/$40)-1)*100 = 25%, and if the price continues up to $60 per share, the investor can secure a profit at 16%. So by averaging down, investors and traders can cover the losses easier and potentially have more profit to secure at the end.

THE AVERAGE DOWN TRADINGVIEW TOOL

This script/indicator/trading tool helps traders and investors to get the average price of their position. The tool works for Long and Short and displays the entry price, average price, and the PnL in points.

HOW TO USE 

  • Use the tool to calculate the average price of your long or short position in any market and timeframe.
  • Get the current PnL for the investment and keep track of your entry prices.

APPLY TO CHART 

When you apply the tool on the chart, you have to select five entry points, and within the setting panel, you can choose how many of these five entry points are active and how many contracts each entry has. Then, the tool will display your average price based on the entries and the number of contracts used at each price level.

 

Subscribe to our membership

TRY IT YOURSELF!

Access the Averaging down Indicator on TradingView

ACCESS THE INDICATOR ON TRADINGVIEW!

“Boost” the script and add it to your Favorites and you will be able to access the script for free! WOW! Please leave a comment if you like it!

More Indicators

MACD & RSI Overlay

MACD & RSI Overlay

MACD and RSI Overlay Indicator The MACD & RSI Overlay (Expo) trading indicator is a technical analysis tool that combines two popular indicators, the Relative Strength Index (RSI [14]) and the Moving Average Convergence Divergence (MACD [12,26]), and overlays them...

2B Reversal Pattern

2B Reversal Pattern

The 2B reversal pattern, also known as the spring pattern, is a popular chart pattern among professional traders to identify potential trend reversals. This pattern occurs when the price seems to be breaking up or down and suddenly bounces back up or down, forming a...

Fair Value Gap Oscillator

Fair Value Gap Oscillator

Fair Value Gap Oscillator The Fair Value Gap Oscillator is an exceptional smart money concept tool that measures oscillations of the market's fair value gaps. It is a leading momentum indicator used to identify the assets' mispricings over time. By understanding how...

Ross Hook Indicator

Ross Hook Indicator

Ross Hook Indicator Access it for free here! Watch the video here!   Technical analysts use historical price data to predict the market and identify trading opportunities in price trends and patterns. This way of reading the market is becoming more and more...

1-2-3 Pattern Indicator

1-2-3 Pattern Indicator

1-2-3 Pattern Indicator Access it for free here! Watch the video here!    The most basic and essential formation in the market is the 1-2-3 pattern. Almost every great move ever made in the market starts from this formation. 1-2-3 pattern initiates trends,...

Curved Stop Loss

Curved Stop Loss

The best stop loss! Improved new stop-loss technique.   Curved Stoploss Our Curved Stoploss automatically calculates the best stop-loss distance based on real-time momentum. Once the algorithm has analyzed the current market characteristics, a curved stop loss is...

False Breakout

False Breakout

False Breakout Indicator  This is one of the best indicators that detects and identifies false breakouts! Breakout Traders can now be notified when there is a false breakout. False Breakout (Expo) This false breakout indicator detects false breakouts in real time. A...

Breakout Probability

Breakout Probability

Breakout Probability The indicator calculates the probability of a new high or low and displays it as a level perfectly on your chart. This indicator is hugely useful for all kinds of Traders!      Breakout Probability (Expo) is a valuable indicator that...

Smart Money Concept

Smart Money Concept

What is Smart Money?How can we trade as Smart Money does?Don't get fooled by delayed pivot pointsThe difference that mattersHow can you spot if you are using a pivot point SMC indicator?Smart Money Concept by Zeiierman Trading - a must-have!Be smart and start using...

Free Smart Money Concept

Free Smart Money Concept

Free SMC Indicator Table of contentsSmart Money Concept (SMC) indicatorFully automated and real-time SMC FeaturesHOW TO USE SMC SMC SettingsSMC Basic TerminologySubscribe to our membershipAccess the Free Smart Money Concept Indicator on TradingView Are you Trading...