RE: Future12 Sep 2024 14:31
Stocks don’t always bounce after buying or averaging down. Stocks can fall for extended periods of time, can fall a long way, or may never get back to their former price levels.
Even if a stock does eventually bounce, you can’t know for sure when that will happen. A stock could decline or move sideways for months or even years, tying up your capital.
Buying more of something that is dropping means giving up the opportunity to buy something that is performing better.
Averaging down can result in large losses if the stock doesn’t bounce and keeps dropping.
Adding to a position as it declines may mean the trader doesn’t have a sound risk-management method, such as using a stop-loss order or exiting when the stock falls by a certain amount.