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

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 following equity curve (shown below) since SPY’s inception in 1993.

You can find more info about this trading strategy here:

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