The Worst Forex Trading Strategy Ever That You Might Be Using

Traders often purchase shares this way in an effort to reduce their initial entry price.
Only bad investors average down by buying shares of a sinking assests to decrease their overall average price per share. This Forex trading strategy is hardly ever effective, and is often like throwing good money after bad. It also magnifies a trader's loss if the share keeps dropping.
Remember, just because a share is cheap now that doesn't mean it's not going to get any cheaper.
However, let's examine how this devastating Forex trading strategy works.
Say you bought 1,000 shares at $40.

The novice investor may not have a stop loss in place, and the share price falls to $30. Here comes the stupidity of this Forex trading strategy – to average down, the novice trader might by another 1,000 shares at $30 to lower the average cost per share that he'd already purchased. So, his average cost per share would now be $35.
Unfortunately, the share price may fall even further, and the novice trader will again buy more shares to reduce the average cost per share. They end up buying more and more into a share that's losing their money.

Now, imagine this Forex trading strategy being applied to a portfolio of assets. In the end, all the capital will automatically be allocated to the worse performing assets in the portfolio while the best performing assets are sold off. The result is, at best, a disastrous under performance versus the market.
If a trader uses an averaging down system and uses margins, their losses will be magnified even further.
The biggest problem with this Forex trading strategy is that a trader's gains are cut short, and the losers are left to run.

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