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Averaging down is an investment strategy in which an investor purchases additional shares or other assets at a lower price than their initial purchase price. This strategy is employed when the price of the asset has declined after the investor's initial purchase. Through buying more of the asset at a lower cost, the average cost per unit or share decreases.

Averaging down can be applied to various types of investments, including stocks, bonds, commodities, and cryptocurrencies. This article provides an example of what averaging down may look like and explores some of the considerations that must be taken into account prior to implementing such a strategy. Averaging Down – An Example To illustrate the principle of averaging down, consider the following example.

An investor believes in the long-term potential of an AI company's stock, ABC Tech Pty Ltd, and initially purchases 100 shares at $50 per share, resulting in a total investment of $5,000. However, over the next few months, the stock price declines due to market volatility and concerns about the company's financial performance. Initial Purchase: Bought 100 shares of ABC Tech Pty Ltd. at $50 per share.

Total investment: $5,000. Breakeven cost: $50 per share Averaging Down actioned After a few months, the stock's price has fallen to $40 per share. The investor believes that the price drop is temporary.

Rather than selling the shares at a loss of $1,000, the investor decides to employ an averaging-down strategy. The investor purchases an additional 100 shares of ABC Tech Pty Ltd at the current price of $40 per share. Here's how the investment looks after the additional purchase: Initial 100 shares at $50 per share: $5,000.

Additional 100 shares at $40 per share: $4,000. Total investment: $9,000 Breakeven cost: $45 per share The Opportunity in Averaging Down With the average cost per share now reduced from $50 to $45, a profit will be realized if the stock's price eventually rebounds and exceeds $45 per share. If the stock price increases to $55 per share, here is the updated financial picture: Initial 100 shares at $50 per share: Original value $5,000, now worth $5,500 — $500 profit.

Additional 100 shares at $40 per share: Original value $4,000, now worth $5,500 — $1,500 profit. Current total value of holdings: $11,000 from an initial investment of $9,000. Total profit: $2,000 Risks of Averaging Down However, if the stock price declines further to $35, the situation would be as follows: Initial 100 shares at $50 per share: Original value $5,000, now worth $3,500 — $1,500 loss.

Additional 100 shares at $40 per share: Original value $4,000, now worth $3,500 — $500 loss. Current total value of holdings: $7,000 from a total investment of $9,000. Total loss: $2,000 So rather than an opportunity realised there is a compounding of the losses.

This can be exaggerated further should additional averaging down purchases be made at the new lower price, which some who use this strategy would subsequently action. What this example aims to illustrate is that despite any potential advantage, merely buying more of an asset because its price has declined doesn't guarantee that the asset's value will eventually recover. Without proper research and analysis, investors might be investing in an asset with poor long-term prospects.

So, the key message is that this strategy should be based on additional considerations that must form part of the decision making. Key Considerations for Averaging Down As we have outlined, averaging down can be a tactical move when executed with careful consideration of the asset's fundamentals and market trends. It can be particularly effective for investors with a long-term perspective who believe in the asset's long-term potential.

However, the following represent some of the considerations that must be at the forefront of any such decision. Potential for Larger Losses: As already referenced but is worth re-iterating, averaging down carries the risk that the asset's price might continue to decline after additional purchases. This can result in larger losses if the price does not recover as anticipated.

The reason for any decline must be fully investigated. Of course, it could be a simple short-term market fluctuation that may be taken advantage of, but it is vital to explore whether there is a more permanent decline in company performance meaning recovery is less likely. Sunk Cost Fallacy: Averaging down can lead to a cognitive bias termed sunk cost fallacy (or sunk cost bias), where investors continue investing in a losing position because they've already committed capital.

This can prevent them from objectively assessing the asset's true potential and an emotion-based refusal to accept that the loss in value may not recover. Loss of Diversification: Overcommitting to an averaging down approach in a single asset can lead to an imbalanced portfolio, reducing diversification and so arguably increasing overall risk. Opportunity Cost: Funds used for averaging down could potentially be invested in other assets with better potential for growth.

Investors need to assess whether averaging down is the best use of their capital and so by committing more into a single asset may be losing opportunities in another. Time Horizon: Averaging down often requires a longer time horizon to potentially realise any potential gains. If an investor needs liquidity in the short term, this strategy might not align with their investment profile or goals.

Psychological Stress: Sustained declines in an asset's price can lead to emotional stress for investors who are hoping for a recovery. Emotional decision-making can lead to poor choices. Using averaging down as a substitute for a clearly defined exit strategy: Any investment should be underpinned with a soldi and unambiguous risk management foundation.

Averaging down is often employed without due consideration of this reality and often employed by those without clearly defined exit points for longer term positions. Summary Averaging down can be useful if applied thoughtfully and with a clear risk management plan. However, it comes with its own set of risks, and investors must carefully consider their risk tolerance, investment goals, and market conditions before deciding to implement this strategy.

As always, it's crucial to maintain a well thought out portfolio, conduct thorough research, and avoid emotional decision-making.

The Relative Strength Index (RSI) is an oscillator type of indicator, designed to illustrate the momentum related to a price movement of a currency pair or CFD. In this brief article we aim to outline what this indictor may tell you about market sentiment, and along with other indicators assist in your decision-making. As with most oscillator type of indicator, the RSI can move between two key points (0-100).

The major aim of the RSI is to gauge whether a particular asset, in our context a forex pair or CFD, is overbought or oversold, and the associated key levels are below 30 (when it is classed as “Oversold”) and above 70 (where it is classed as “overbought”). To bring up an RSI chart on your MT4/5 platform it is simply a case of finding the RSI in your list of indicators in the Navigation box and clicking and dragging it into your chart area. The diagram below illustrates this on a 30-minute chart.

It is generally thought that if the RSI moves into either of these two zones then a change may be imminent. Most commonly the RSI may be used as part of entry decision making. Traders may use this as an additional tick (when other indicators suggest entry) to make sure they do not enter a long trade on an overbought currency pair, or short trade on an oversold currency pair.

Therefore, when articulating this in your trading plan it may read something like the following: a. I will refrain from entry into a long trade if the RSI has moved above 70 on the last trading bar. b. I will refrain from entry into a short trade if the RSI has moved below 30 on the last trading bar.

Less frequently but logically, if one accepts this premise that a move into either of the previous described zones then a trend change may be imminent. It could also be used as a “warning” to potentially exit from an open trade. Traders who wish to explore this in their own trading could: a.

Tighten a trail stop to within a specified number of pips from current price e.g., 10 Pips. or b. Exit the trade entirely. Of course, in either case and with any indicators we discuss, back-testing it with previous trades to ascertain any change in outcomes can be performed to justify a prospective test.

Finally, after gathering a critical mass of trade examples exploring if this would make a difference, this could provide the evidence to suggest whether you should (or should not if there is no difference) formally add to your trading plan. For a live look at how indictors may be used in the reality of trading decision making, why not join our “Inner Circle” group with regular weekly webinars on a range of topic including that of indicators. It would be great to have you as part of the group.

CLICK HERE to enroll for the next inner circle session. This article is written by an external Analyst and is based on his independent analysis. He remains fully responsible for the views expressed as well as any remaining error or omissions.

Trading Forex and Derivatives carries a high level of risk.

Definition of Moving Average In trading, moving averages are often used to smooth out price data to generate trend-following indicators. The most commonly used types are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). A Simple Moving Average is calculated by defining a period, e.g., 10—or, in other words, the last 10 candles—adding these last 10 close prices, and then dividing by 10.

This is recalculated every time a candle closes and may be plotted as a single line on a price chart. An Exponential Moving Average is often preferred by many traders because it gives more weight to recent prices and appears to be more responsive to price changes than the Simple Moving Average. Ways to Use Moving Averages in Trading Decisions – An Overview Although, like most indicators on a trading platform, a moving average is 'lagging' in terms of the information it provides, its ability to indicate trend direction and changes makes it popular.

For entry points, traders often use two different moving averages, such as a 10 and 20 EMA on a chart. When these crossover so that the 10 is higher than the 20, for example, it may be indicative of a new uptrend (and vice versa for a potential downtrend). Larger moving averages, like the 200 and 50, are commonly observed, particularly when these cross.

For instance, the 50 crossing below the 200 is termed the "death cross" and could indicate a long-term uptrend changing to a downtrend. For exit strategies, rather than waiting for a moving average cross, a more timely exit signal might be a cross between price and a moving average. This is the major focus of this article, and we will discuss this approach along with a few considerations.

Using Price and Moving Average as a Trail Stop So let us first clarify what we mean by a trail stop or trailing stop. Traditionally, a trail stop is a type of stop-loss order that moves with the market price as a trade progresses in your desired direction. For example, if you buy a stock at $100 with an initial stop of $90 and the price moves up to $110, you may "trail" your initial stop from $90 up to $102.

This means that if the trade turns around and moves back down to $102, triggering your trail stop, you would still make a minimum profit of $2 per share, even if the price continues to drop back to $90. If the price doesn't drop but continues to rise, you can move your trail stop higher, for example, to $115, then $120, and so on, until the price eventually falls and triggers an exit. In simple terms, a trail stop locks in profit and manages the risk of giving all potential profit back to the market as the price moves in your desired direction.

Many approaches systematize the use of a trail stop as part of a trading plan, rather than simply using an arbitrary price. One of these approaches is to use a moving average as a trail stop, which we will now discuss in more detail. Moving Average as a Trail Stop Using a moving average as a trail stop means that instead of setting your stop-loss at a fixed dollar amount below the market price, you set it at the level of a particular moving average.

As the moving average changes, your trail stop will move with it. For example, consider the chart below where we have entered a short gold trade on an hourly timeframe at point "A," anticipating a potential trend reversal. The yellow line on the chart is a 10EMA.

The price moves in our desired direction and closes above our yellow line (or the 10 EMA) at point "B," locking in a good profit for this trade. As you can also see, a candle's price crossed temporarily over the 10EMA at point "C" but closed below it. This is an important consideration that we will touch upon later.

Considerations for Traders There are several factors to consider when deciding which approach suits your individual trading style, and these should be tested to find the optimal strategy for you. Which MA Type?: We've already discussed the major differences between Simple and Exponential Moving Averages. Many traders, particularly those trading shorter timeframes, tend to prefer the EMA due to its greater responsiveness to trend changes.

However, just because a particular approach is right for many doesn't mean it can't be different for you. Which Period MA?: This is probably the most debated consideration. A longer EMA, e.g., 20 instead of 10, will require a more significant price drop to trigger, meaning you may give more back to the market if the drop continues.

However, this must be balanced against the possibility that any uptrend may pause and even retrace for a period before resuming its climb. MA Touch or Close?: Another key debate is whether a trail stop using a moving average should be triggered by any touch of that moving average at any time, or whether to wait for a close price through the MA. Both approaches have pros and cons, which need to be weighed carefully.

In Summary There's no doubt that the concept of using a trail stop merits exploration for any trader. Price/MA cross is a relatively easy concept to understand and implement and can improve trading outcomes irrespective of the "fine-tuning" considerations discussed. Your challenge is clear: thorough, ongoing testing is essential to refine your choice and find the optimal method for you.

Strategies Simple Moving Average (SMA) Strategy: Utilizing a 50-day SMA as a trail stop could be effective for longer-term trades. If the price drops below the 50-day SMA, you could trigger a sell order. Exponential Moving Average (EMA) Strategy: For more sensitive, shorter-term trading, a 20-day EMA could be used as a trail stop.

The EMA gives more weight to recent prices and thus responds more quickly to price changes. Price Percentage and MA Combination: You could set a rule where the trail stop triggers if the price drops a certain percentage below the moving average. For example, if the 50-day

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In the lead-up to the European Central Bank (ECB) interest rate decision this week, the market has seen significant turmoil. Firstly from the Silicon Valley Bank (SVB) failure, followed by the news that Credit Suisse’s largest financial backer is unlikely to provide further financial support. This led to Credit Suisse stock plunging by more than 28% and taking with it, the Eurozone bond yields and the Euro.

President Lagarde from the ECB had been signaling to the market, on multiple occasions, since the previous meeting that the ECB will hike rates by 50bps at the March meeting. However, with the current uncertainty especially with the banking failures seen in the US, the market has begun pricing in the possibility that the ECB hikes rates with more caution by deciding on 35bps rather than 50bps at the March meeting. This has led the EURUSD to reverse all recent gains, turning down from the 1.0750 price level to trade along the key support level of 1.0540.

If the ECB releases a decision to hike rates by less than 50bps, this would be a major red flag to the market and also indicate a slowdown in its path of monetary policy tightening, which could see the EURUSD continue with the current downward momentum. If the price breaks below the current support level and the interim price level of 1.0440, the EURUSD could see significant moves downside, supported by the cross-over of the MACD, with the next key support level at 1.0220, which was the previous swing low in November 2022. Alternatively, if the ECB maintains its previous stance and decides to hike rates by 50bps at this meeting, the EURUSD could see brief relief.

However, it would be unlikely that the price would reverse significantly, with the current market uncertainties likely to maintain the downward pressures and the 1.08 resistance level likely to hold firm.

Walgreens Boots Alliance Inc. (NASDAQ: WBA) announced the latest financial results before the market open in the US on Tuesday. The company beat both revenue and earnings per share (EPS) estimates. Walgreens reported revenue of $34.862 billion for the quarter ending February 28, 2023 (up by 3.3% year-over-year) vs. $33.528 billion expected.

EPS reported at $1.16 per share (down by 27.2% year-over-year) vs. $1.103 per share estimate. CEO commentary "WBA exited a solid second quarter with acceleration in February, adding to our confidence in driving strong growth in the second half of the year. With the closing of VillageMD's acquisition of Summit Health, WBA is now one of the largest players in primary care, with best-in-class assets across the care continuum.

Both Walgreens and Boots are performing well by delivering compelling value to consumers, playing a critical role as community health destinations, and successfully navigating a challenging environment. We will continue to take bold actions to create sustainable long-term shareholder value," CEO of the company, Rosalind Brewer said in a press release. The stock was up by around 1% in pre-market trading following the latest results.

The stock is down by 11.83% year-to-date at $32.96 a share. Stock performance 1 month: -7.29% 3 months: -14.02% Year-to-date: -11.83% 1 year: -31.12% Walgreens Boots Alliance price targets Barclays: $43 Evercore ISI Group: $35 Loop Capital: $45 Morgan Stanley: $37 Truist Securities: $42 JP Morgan: $40 Credit Suisse: $41 Mizuho: $41 Cowen & Co.: $54 Deutsche Bank: $50 Walgreens Boots Alliance Inc. is the 605 th largest company in the world with a market cap of $28.41 billion. You can trade Walgreens Boots Alliance Inc. (NASDAQ: WBA) and many other stocks from the NYSE, NASDAQ, HKEX, ASX, LSE and DE with GO Markets as a Share CFD.

Sources: Walgreens Boots Alliance Inc., TradingView, MarketWatch, MetaTrader 5, Benzinga, CompaniesMarketCap