Traders often stumble across averaging down. It is not something they intended to do when they began trading, but most traders have ended up doing it. There are several problems with averaging down.The main problem is that a losing position is being held, not only potentially sacrificing money, but also time. This time and money could be placed in something else that proves to be a better position.Also, for capital that is lost, a larger return is needed on the remaining capital to get it back. If a trader loses 50% of their capital, it will take a 100% return to bring them back to the original capital level. Losing large chunks of money on single trades or on single days of trading can cripple capital growth for long periods of time.While it may work a few times, averaging down will inevitably lead to a large loss or margin call, as a trend can sustain itself longer than a trader can stay liquid-especially if more capital is being added as the position moves further out of the money.Daytraders are especially sensitive to these issues. The short time frame for trades means opportunities must be capitalized upon when they occur, and bad trades must be exited quickly.:)
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