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In traditional investing, you hear a lot about averaging down or lowering your cost basis to capture gains. Tune in to learn why this might not be the most viable strategy for trading low-priced stocks. Tim Bohen breaks it down with a specific chart to show you why. Check it out!
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No matter what ‘sage’ investment advice you may hear, don’t fall into the trap of averaging down. Especially when it comes to low-priced stocks. If you trade blue-chip stocks like Microsoft or Apple, maybe it could work for you. But here we’re talking specifically about day trading and swing trading.
Thing is, these are very volatile stocks that tend to spike and drop quickly. And too many new traders fall into the trap of trying to apply a traditional investment mindset to these volatile stocks. Today, Tim shows you with a specific stock. Watch the full video for a complete breakdown.
With this stock, you see it spikes ... and then drops hard, over and over again. If you average down in the stock every time it spikes, and then it fails, you can’t make a profitable trade. Look at the long-term chart. The stock fades and fades.
Keep in mind, the stock we’re looking at here — CEI — has had a few reverse splits through the years. This stock is fading. It’s a great example of why averaging down doesn’t always work.
If you're trying to add to a losing position, averaging down into every spike, it'll do the opposite of what you intend. Now you're trapped because it moves so quickly to the downside.
So, yeah, the stock bounces, but those bounces get smaller and smaller ... to the point where they're barely perceptible. Because every spike gets slammed. And the reverse splits dilute the stock even further, dilute the share count. You can get trapped. Getting back to profitability on a stock like this is near impossible.
This isn’t unusual in the land of low-priced stocks at all. We love these stocks for the momentum, the potential for meaty gains. But you need to understand why you should never average down into a loser. If you're a losing trader … if you're inconsistent … if you're struggling and adding to losers… that's loser behavior.
That’s not a smart, viable way to trade. And it's not a winning strategy over time.

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*Tim Bohen teaches skills others have used to make money. Most who receive free or paid content will make little or no money because they will not apply the skills being taught. Any results displayed may be exceptional. We do not guarantee any outcome regarding your earnings or income as the factors that impact such results are numerous and uncontrollable.
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