Averaging down: how it works and where its edge is

The idea

You bought a coin at 100. The price fell to 90 and you bought the same amount again. Your average entry is now about 95, and to get out ahead the price has to come back not to 100 but to a little over 95.

The multiplier

Often each buy is made larger than the one before. The average then falls faster and a small bounce is enough to exit. The price of that is money: when doubling, the fifth buy is sixteen times the first, and the series of five costs thirty-one first buys.

Where the edge is

Averaging does not know where the bottom is. If the coin falls for longer than your money lasts, the steps run out and you are left with a large position above the market. The larger the multiplier, the sooner that happens.

How Average Grid is built

• The first buy is at market, on start.
• Each next one is a set step below the previous, with its own amount multiplier.
• When the price rises above the average by the set percent, the bot sells the whole position and starts the cycle again.
• If there is not enough money for the next buy, the bot stops buying and goes on waiting for the exit.
• The bot does not sell at a loss. When the steps run out, it waits.

How much money it will take

Add up every step’s amount with its multiplier — that is the sum you risk being stuck with. Work it out before you start, not when the price is already down.

When averaging makes sense

When you would hold the coin anyway, have decided beforehand how much money goes to it, and that sum covers every step. Averaging with your last money in the hope of “getting it back” is the fastest way to turn a drawdown into a large drawdown.