Eli5: with stocks going down why would someone hold and buy more on the way down (average down) and not just sell now and buy again when the stock bottoms out?
In: Mathematics
Because you don’t know when or where the stock will bottom out. Either option is a gamble–you might sell now and suffer only a small loss, only for the stock value to massively rally and end the day higher than it started; or you might hold and buy more, only for the stock to tank and stay tanked pretty much forever. If you sell now then you’re making several gambles all at once–you’re gambling that the stock will keep dropping, that you’ll be in a position to figure out when it hits rock bottom, and also be in a position to buy it up at that moment, so overall, the risk is higher.
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