The Art of Averaging
Averaging is a term one may come across in the markets from time to time; what it refers to is the average price paid for a particular stock if you bought stock in that particular company.
To calculate the average price paid for a particular stock, you add up the total amount you paid for the stock and divide it by the number of shares you bought in that company.
The answer is the average amount you paid per share.
Try this math question:
There are five numbers 10, 20, 30, 40, 50
What is the average number?
Add the five numbers: 10 + 20 + 30 + 40 + 50 = 150
Divide the sum of the five numbers (150) by 5
150 divided by 5 = 30 (answer)
You can do this easily with a calculator.
There are so many stock trading platforms these days that investing directly in the stock market has never been easier for the common man and woman.
So how does averaging work?
If you buy stocks at regular intervals, you will pay different prices for each share because stock prices go up and down. Imagine if you bought something at the supermarket last week at full price, and then bought the same item this week at a special price. The average price you paid for the item will be somewhere between the higher and lower price.
This is how the stock market works. By buying a particular stock at regular intervals, you will be able to pick up some shares of it when the price is lower. This is the advantage of regular saving.
In fact, I think there is a case for buying more shares when the price is low. The average price paid per share is determined by calculations as explained above.
Averaging strategy can also be used when investing in crypto currency.
Bitcoin is more volatile than the stock market, so a shrewd investor with an eye for a bargain can invest when the price has fallen.
There are so many stock trading platforms available that playing the markets is accessible to everyone. I joined two of them in New Zealand. Most countries have stock trading platforms. Signing up for them is easy; you need some form of identification. Just follow the directions and you’re good to go.
TO SUM UP
Playing the markets requires positive thinking and a cool head. If you have these, you can profit from falling markets. Averaging is a method that takes advantage of falling markets.