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Average down Strategy

"An investor without investment objectives is like a traveler
without a destination". Ralph Seger

Introduction
"Know what you own, and know why you own it ."
Peter Lynch

Every professional trader uses a system. Some systems are very complex, requiring years of
research and dedication, while other systems are easier to master.
It is unwise to start trading without using a trading system or strategy. Investing blindly without
a strategy will get you nowhere. You may earn a few dollars here and there, but not a constant
return.
When you have a system, it is easy to see whether you are making progress, or need to take
a step back to evaluate, and learn from your mistakes, adapting your system to the current
market environment.

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

Most successful traders do not have degrees in finance and they are not using
overly-complex systems. In this guide we will help you understand one of the more
straight-forward and easy to master strategies used by many traders today. It is
called the Average down strategy. This strategy rests upon the market’s tendency
to be cyclical and to experience a lot of bumps and corrections along the way, as
opposed to moving in straight lines. Usually when a resistance or support level
is hit, the market corrects. Following this correction, market traders review the
fundamental data and decide in which direction to move.

Market Cycle

Start of
the move
Resistance

Temporary
Support Levels

Support

Reversal

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

This strategy is particularly successful when dealing in Forex, as opposed to equities,
which are not as range bound, as you will see in the following charts.
Apple VS EUR/USD from 2005 to the present day.

Apple

$720

Range
between
$20 & $720

$20

eur/usd

1.60

Range
between
1.18 & 1.60

1.18

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

Explanation
The Average down strategy allows you to take advantage of the market's tendency to correct.
When using this strategy you can benefit from market corrections even when the market fails
to reach your initial entry level.
In the below chart you will see an example of a trader who decided to enter a long (buy) position.
The market initially moved against him. However, using the average down strategy, he earned
a sizable profit before the price reached his initial entry level.

Market Cycle

Enter a long position
Profit on the entire position

1st addition to initial position in
average down strategy
2nd addition to the position in
average down strategy
Buy
order

3rd addition to the position in
average down strategy

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

When implementing the Average down strategy there are two questions that need to be taken
into consideration:
i.
ii.

What multiplier will you use to increase your next position?
How many pips will you wait until you start adding to the initial position?

Evidently, your level of exposure increases, when you use a higher multiplier. As you can see
from the below table, if your original trade is 0.01 lot and you are multiplying each position
by 1.2, your 6th trade in the sequence will increase your market exposure by 0.3 Lot. If you
decide to use a higher multiplier e.g. 2, your 6th trade will increase your market exposure by 6.4
Lot. Needless to say, as you increase the multiplier, your risk grows, along with your potential
market exposure.
On the upside, when you use a higher multiplier, each position requires a smaller correction
before your total trade breaks-even.

1st
Trade
size

2st
Trade
size

3st
Trade
size

4st
Trade
size

5st
Trade
size

6st
Trade
size

Trade multiplier

X

Original
position
size

Multiply next position by

1

0.10 Lot

0.10 Lot

0.10 Lot

0.10 Lot

0.10 Lot

0.10 Lot

0.10 Lot

Multiply next position by

1.2

0.10 Lot

0.12 Lot

0.14 Lot

0.17 Lot

0.21 Lot

0.25 Lot

0.30 Lot

Multiply next position by

1.4

0.10 Lot

0.14 Lot

0.20 Lot

0.27 Lot

0.38 Lot

0.54 Lot

0.75 Lot

Multiply next position by

1.5

0.10 Lot

0.15 Lot

0.23 Lot

0.34 Lot

0.51 Lot

0.76 Lot

1.14 Lot

Multiply next position by

1.6

0.10 Lot

0.16 Lot

0.26 Lot

0.41 Lot

0.66 Lot

1.05 Lot

1.68 Lot

Multiply next position by

1.8

0.10 Lot

0.18 Lot

0.32 Lot

0.58 Lot

1.05 Lot

1.89 Lot

3.40 Lot

Multiply next position by

2

0.10 Lot

0.20 Lot

0.40 Lot

0.80 Lot

1.60 Lot

3.20 Lot

6.40 Lot

Increasing level of Risk &
Market exposure

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

The same holds true for when you start adding to the initial position. The smaller the pip
increment you use when starting to average down the quicker the increase in exposure. It is
important to take market volatility into account when deciding at what point to add to your
position.
As illustrated in the table below, if you add to your position every 45 pips, your 6th trade in the
sequence will be 270 pips from your initial entry. If you increase every15 pips your 6th trade will
be just 90 pips away from your initial entry.

Trade Frequency

1st
Trade @

2st
Trade @

3st
Trade @

4st
Trade @

5st
Trade @

6st
Trade @

Increase position each 45 pips

45 pips

90 pips

135 pips

180 pips

225 pips

270 pips

Increase position each 40 pips

40 pips

80 pips

120 pips

160 pips

200 pips

240 pips

Increase position each 35 pips

35 pips

70 pips

105 pips

140 pips

175 pips

210 pips

Increase position each 30 pips

30 pips

60 pips

90 pips

120 pips

150 pips

180 pips

Increase position each 25 pips

25 pips

50 pips

75 pips

100 pips

125 pips

150 pips

Increase position each 20 pips

20 pips

40 pips

60 pips

80 pips

100 pips

120 pips

Increase position each 15 pips

15 pips

30 pips

45 pips

60 pips

75 pips

90 pips

Increasing level of Risk &
Market exposure

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

Example
As an example we will take a trader who trades on the EUR/USD.
He wishes to take 60 pip profit on his positions and uses an average down strategy in which he
opens additional positions every 40 pips with a 1.4 multiplier.

Entry of 0.10
lot @ 1.3060

1st pos of 0.14
lot @ 1.3020

2nd pos of 0.20
lot @ 1.2980

Profit of $121.45 when
the position hits the
take profit @ 1.2920

3rd pos of 0.27
lot @ 1.2940
4th pos of 0.38
@ 1.2900

5th pos of 0.54
@ 1.2860

Break Even on
total position @
1.2912

As you can see the trader in this example bought the EUR/USD at the moment the market
started to drop. However, by using the average down strategy, where he continued to buy long
positions, he managed to earn a $121.45 profit, 140 pips below his initial entry level.

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

Practice trading with the average down strategy, and sharpen your skills, risk-free, with
$100,000, in a demo account.
Alternatively, use the strategy as a basis for building your own personal system and
trade now utilizing the strategy to boost your trading potential today.
We hope you found this explanation valuable. Please don’t hesitate to contact a member
of our team if you have further questions or wish to learn more about trading strategies.
To maintain your market edge it is always advisable to employ a trading strategy. However,
please note that in presenting the Average Down Strategy, as a potential approach to meet
your investment needs, Markets.com in no way guarantees a profit on investments made as
a consequence of utilizing this strategy.

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

Glossary
Asset: A resource with economic value such as a currency pair, commodity, index, or share.
Entry Level: Rate at which you enter the first trade of your strategy
Long Position: Buying of an asset, with the expectation that it will rise in value.
Lot: The standardized quantity of a financial instrument in case of forex 1 lot usually stands for
100.000 units ($100.000)
Market Cycle: Trend or pattern that exists in a given market environment.
Market Exposure: The amount of funds invested in a particular asset.
Multiplier: The factor with which you multiply your next position.
Pip: The Smallest price change that a given exchange rate can make usually 0.01 cent.
Range: An assets low price and high price for a particular trading period. Often the price
remains between these 2 levels for a longer period of time.
Resistance Level: A level that caps the increase of an asset over a period of time.
Short Position: Sale of a borrowed asset, with the expectation that it will fall in value.
Support Level: A level that caps the decrease of an asset over a period of time.
Take Profit: The level at which a trader wants to take his profit.

HIGH RISK INVESTMENT WARNING: Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries
a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you
should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.
Please click here to read full risk warning. Markets.com is a trading name of Safecap Investments Ltd, a Financial Services Company
authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. 092/08. Safecap Investments Ltd is
located at Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.

Treppides Tower, 6th Floor Kafkasou 9, Aglantzia P.O.Box 26522 CY2112, Nicosia, Cyprus.