Quick Take: The Pitfalls of Averaging Down

Saw some chatter about "averaging down" after a loss. Look, it's a tempting strategy when a stock dips, like if you'd bought $ASML at 1890 and saw it hit 1860. The idea is you buy more at a lower price, reducing your average cost per share, so you break even faster when it recovers. Sounds good in theory.

Problem is, it assumes the dip is temporary and the asset will recover. What if it's not? Averaging down on a fundamentally broken stock or a falling knife like $EURCHF has been for some, just digs you into a deeper hole. You're effectively doubling down on a losing bet. Better to cut losses and redeploy capital elsewhere than to pour good money after bad on a trade that's already gone against you. It's about preserving capital, not stubbornness.