Averaging Down Trading Strategy (Statistics, Facts, & Historical Backtest)

Averaging down is a trading or investing method in which a stock owner buys more shares of a previously bought stock after the price has fallen. The main idea behind the average down technique is that it lowers the average purchase price, so when prices rise, it doesn’t take as much of an increase for the investor to start realizing a return on their investment.

In this post, we look at the averaging down trading strategy.

We backtest the following trading rules:

* We buy when the 5-day RSI is below 35

* We sell when the close is higher than yesterday's high

With no averaging down, we get the equity curve (SHOWN IN THE IMAGE) since SPY’s inception in 1993.

We explained the drawdowns and detailed performance metrics here >>

https://www.quantifiedstrategies.com/averaging-down-trading-strategy/