The averaging down stocks strategy involves buying additional shares of the same stock after its price has fallen below your initial purchase price.

The idea is simple: if you believed the stock was a good investment at a higher price, it may appear even more attractive at a lower price. A lower price does not necessarily mean better value; investors should reassess the reasons for the fall and the investment case.

By purchasing more shares at lower prices, you reduce the average cost (breakeven point) of your position. If the price later rises above this average, the overall position can return to profit.

However, this strategy depends on a critical assumption: the stock will eventually recover.

That assumption is not always correct. Stocks…