The art of averaging
Averaging is a term you see in the markets from time to time; it refers to the average price paid for a particular stock if you bought the stock of 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 for the stock.
Try this math question:
There are five numbers 10, 20, 30, 40, 50
What is the average number?
Calculation:
Add 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 easily do this with a calculator.
There are so many stock trading platforms available today 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 rise and fall. Imagine that last week you bought something at the supermarket at full price and this week you bought it 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 purchasing a particular stock at regular intervals, you will receive several shares when the price is lower. This is the advantage of regular savings.
In fact, I think there is an argument for buying more shares when the price is low. The average price paid per share is determined by calculations as explained earlier.
Averaging strategy can also be used when investing in cryptocurrency.
Bitcoin is more volatile than the stock market, so a shrewd investor looking for a bargain can invest when the price falls.
There are so many stock trading platforms 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 instructions and you’re good to go.
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Playing the markets requires positive thinking and a cool head. If you have them, you can profit from falling markets. Averaging is a technique that takes advantage of falling markets.