1

Adding to a loser or doubling down i.e add to your position when it has halved because of adverse movement is a very debated topic.

Is there any study done on when it works, and when it does not, just a generic guideline?

I cannot cite any source, but I would say I have read equal number of articles that recommend / condemn this practice. So, does it work, does it not?

3

This is basically martingale, which there is a lot of research on. Basically in bets that have positive expected value such as inflation hedged assets this works better over the long term, than bets that have negative expected value such as table games at casinos.

But remember, whatever your analysis is: The market can stay irrational longer than you can stay solvent.

Things that can disrupt your solvency are things such as options expiration, limitations of a company's ability to stay afloat, limitations in a company's ability to stay listed on an exchange, limitations on your borrowings and interest payments, a finite amount of capital you can ever acquire (which means there is a limited amount of times you can double down).

Best to get out of the losers and free up capital for the winners. If your "trade" turned into an "investment", ditch it. Don't get married to positions.

| improve this answer | |
0

It works if after the price has halved and you buy more the price then rises, however if you are attempting to do this you are basing you "doubling down" on hope, and if you are basing a purchase on hope you are gambling.

In many cases if the price has halved it could be because there is something very wrong with the company, so the price could easly half again. In that case it hasn't worked.

You are better off waiting to see if the company makes a turn around and starts improving. Wait for confirmation that the stock price is heading back up before buying.

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.