Is Averaging Down Bad?

Averaging down is only effective if the stock eventually rebounds because it has the effect of magnifying gains. However, if the stock continues to decline, losses are also magnified. ... However, this is easier said than done, and it becomes an even more difficult task during stock market declines or bear markets.

Does averaging down cut your losses?

You would be decreasing the price at which you originally owned the stock by $5. This is sometimes called "buying the dip." ... Purchasing more shares to average down the price wouldn't change that fact, so do not misinterpret averaging down as a means to magically decrease your loss.

Is it bad to average up?

Averaging up does have risks though. Investors following an average-up strategy could expose themselves to increased losses if they wind up buying company shares just before they fall sharply or if the stock price hits a peak.