Personally I think it's important to get away putting too much emphasis on what your entry price was. This is difficult psycholigically but I think it is important.
If you are buy 1 lot when the price is 65 and the market falls to 45 the facts are simply that you are long 1 lot and the price is 45, it doesn't matter where you entered. If you buy another contract all that matters is you are long 2 lots and the price is 45. The fact that your average price is 55 is irrelevant.
So if you bought at 65 and now it's 45 should you buy another one? Why would you? If you still think it is going up then hold your long. If you don't get out. The only reason to buy another one is if you think the market is now more likely to go up than you thought it was originally or provides better risk/reward. ie you now want to be 2 long with the price at 45. However if you thought 65 was a good entry and now the price is 45 it is very unlikely that you now genuinely think the conditions have improved.
Of course if you are uncertain of your exact entry point then it can often be a good idea to put your position on over a number of prices so your position is bigger at better prices but you still have a position if it doesn't reach them but this should be pre-planned and isn't really averaging.
There is also nothing wrong with having 2 seperate trades on at the same time but again you have to be sure you are being disciplined with regards to your reasons for the second trade.
The problem though is that we're human and our hopes, fears and emotions can often get in the way of our ability to make the right decisions.
If you are buy 1 lot when the price is 65 and the market falls to 45 the facts are simply that you are long 1 lot and the price is 45, it doesn't matter where you entered. If you buy another contract all that matters is you are long 2 lots and the price is 45. The fact that your average price is 55 is irrelevant.
So if you bought at 65 and now it's 45 should you buy another one? Why would you? If you still think it is going up then hold your long. If you don't get out. The only reason to buy another one is if you think the market is now more likely to go up than you thought it was originally or provides better risk/reward. ie you now want to be 2 long with the price at 45. However if you thought 65 was a good entry and now the price is 45 it is very unlikely that you now genuinely think the conditions have improved.
Of course if you are uncertain of your exact entry point then it can often be a good idea to put your position on over a number of prices so your position is bigger at better prices but you still have a position if it doesn't reach them but this should be pre-planned and isn't really averaging.
There is also nothing wrong with having 2 seperate trades on at the same time but again you have to be sure you are being disciplined with regards to your reasons for the second trade.
The problem though is that we're human and our hopes, fears and emotions can often get in the way of our ability to make the right decisions.
