Read the previous post: The Right Technique for Averaging Up - Part I. In this part I will discuss a question that may be quite controversial for most traders. If indeed, our stock price is sure that the stock price will go up (read part I), why do we need averaging up? Just buy one time in bulk.
The answer is because: No one can predict the future. Because no one can predict the future, traders need to do what is called CAPITAL PROTECTION. What is meant by capital protection? Please read on...
I've done averaging up on PPRO stocks 5 times. The first averaging up I did at the price of Rp190 with the number of lots not too big. I'm sure PPRO will be raised high, but because I can't be sure of the future, and market conditions at that time were still a bit volatile, I didn't want to buy too much.
The goal is that if at any time PPRO drops again, I can cut my losses and my losses are not too big. This is called capital protection. If PPRO turns up again, then I will buy again (averaging up). It turned out that the price of PPRO went up again and I bought it at a price of 202. I bought PPRO until the average price was 230.
How did you understand? That is the reason why traders sometimes need to use the averaging up technique. The goal is to protect capital or in other words apply the precautionary principle in trading. It's just that, if you want to averaging up, you have to be able to do it at the right time (Read part I).
This post is not meant to require you to averaging up. I myself have only a few times (sometimes) just averaging up. Why is that? Because if you keep averaging up, then the average price will automatically be higher. If the average price is high, then you need to sell the stock at a higher price in order to get a bigger profit.
Regarding this averaging up, the best stock playing technique whether you want to buy directly in large quantities or averaging up is the best choice of each trader's strategy.
