TheRumpledOne
6,411 posts
msg #48289
- Ignore TheRumpledOne |
12/1/2006 1:40:47 PM
Just about everyone tells you to NEVER add to a losing position.
Do not DOUBLE DOWN is what some say.
And they are right but not only for the reasons you think.
Let's say you go long 100 shares AAPL at $92 and it tanks on you all the way down to $91. You are tempted to buy 100 more. That's a mistake! You should buy at least 200 more shares. Here's the reason.
Based on fib retracements, AAPL would have to bounce 50% for you to breakeven. And if you are human, then you probably want a few pennies more to cover you brokerage fees. And AAPL will probably stall right at $91.50 and reverse on you again.
But if you bought 200 more shares at $91 your average cost would be $91.33 and if AAPL retraces 50%, you can escape with a profit.
But remember the title of this thread: REALLY BAD ADVICE. I am NOT telling you to do this.
This week, I posted some rules I found on the net and the first rule was to NEVER ADD TO A LOSING POSITION, NEVER. The last rule was to know when you can break a rule. And HOW you break the rule is just as important as when.
IT'S NOT WHAT YOU BREAK, IT'S HOW YOU BREAK IT!
Couldn't resist...LOL!
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