Risks of averaging a trade
A trade should solely average once thorough analysis and conviction that the initial trend within the stock continues to be intact. Averaging ought to be worn out stocks that have witnessed a correction because of reasons apart from any elementary amendment within the company and still indicating smart strength on the technical charts. Averaging systematically simply to cut back the price of your loss creating trades must always be avoided.
Consider the instance of Reliance Communications
The stock once touch AN all time high of around 845 levels has been during a constant downtrend. the complete sector has been facing pressure from the past few years because of contemporary competition that has return. Moreover, the basic factors of the corporate has perpetually deteriorated and is presently facing immense debt, that has crystal rectifier to its interest price being larger than the market cap of the corporate. the probabilities of the stock trending higher square measure very low with none material amendment within the company. it’s higher to require a loss and exit your trade instead of pumping in contemporary cash to average your trade such stocks.