Average Down Calculator

Average Down Formula:

\[ \text{New Avg} = \frac{\text{Old Avg} \times \text{Old Shares} + \text{Price} \times \text{New Shares}}{\text{Old Shares} + \text{New Shares}} \]

Old Avg:

dollars

Old Shares:

number

Price:

dollars

New Shares:

number

New Average Price:

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1. What is Average Down?

Averaging down is an investment strategy where an investor purchases more of a stock as the price declines, which lowers the average purchase price of the position. This calculator helps determine your new average price after purchasing additional shares at a different price.

2. How Does the Calculator Work?

The calculator uses the average down formula:

\[ \text{New Avg} = \frac{\text{Old Avg} \times \text{Old Shares} + \text{Price} \times \text{New Shares}}{\text{Old Shares} + \text{New Shares}} \]

Where:

\( \text{Old Avg} \) — Your original average price per share (dollars)
\( \text{Old Shares} \) — Number of shares you currently own
\( \text{Price} \) — Price at which you're buying additional shares (dollars)
\( \text{New Shares} \) — Number of additional shares you're purchasing

Explanation: The formula calculates a weighted average of your existing position and new purchase to determine your new cost basis.

3. Importance of Averaging Down

Details: Averaging down can be a powerful strategy to reduce your break-even point, but it also increases your exposure to a declining asset. It's important to understand the risks and potential rewards before employing this strategy.

4. Using the Calculator

Tips: Enter your current average price, number of shares you own, the price at which you're buying more shares, and the number of additional shares you're purchasing. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: When is averaging down a good strategy?
A: Averaging down can be effective when you have strong conviction in an investment's long-term prospects and the price decline is temporary.

Q2: What are the risks of averaging down?
A: The main risk is increasing your exposure to a losing position. If the stock continues to decline, your losses will be larger.

Q3: How does averaging down affect my break-even point?
A: It lowers your average cost per share, meaning the stock doesn't need to recover as much for you to break even.

Q4: Should I always average down when a stock price falls?
A: No, averaging down should be used selectively. Consider why the price is falling and whether your original investment thesis still holds.

Q5: Can I use this calculator for crypto investments?
A: Yes, the same principle applies to any asset where you can purchase fractional units (coins/shares).