“Averaging Down” is a strategy for when an investment (the market) is down, but you believe it will go back up.

Imagine that last week you bought $XYZ stock for $60.
Everyone is saying it’s going to rocket to the moon.
But then it drops.
And drops some more.

You bought at $60.
It’s now at $30.
You’re down 50%.
$XYZ has to go back to $60 for you to breakeven.
Unless…

You buy 2 more shares of $XYZ at $30.

Here’s how this works:
1 share at $60
2 shares at $30
Total Cost: $120
Total Shares: 3
Average Cost per share: $40

By doubling your investment you dropped your average cost from $60 to $40. Thus reducing your loss from 50% to 25% Which also means, if $XYZ goes back up to $60 you wouldn’t be breaking even, you’d be up $60 (50%)

Warning: This strategy is only if you have strong belief that your investment will go back up. If it doesn’t go back up you’re making the problem worse by buying more shares that are loosing value. Be smart. Buy low, sell high. Do not buy high and *hope* to sell higher.