The art of averaging
Average is a term that can sometimes be encountered in the markets; this refers to the average price paid for a particular share if you had bought shares 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 that 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 total of five numbers (150) by 5
150 divided by 5 = 30 (answer)
You can easily do this with a calculator.
Today, there are so many stock trading platforms that investing directly in the stock market has never been easier for the common man and woman.
So how does the average work?
If you buy stocks at regular intervals, you will pay different prices for each share as stock prices go up and down. Imagine you bought something at the supermarket last week at full price and then bought the same item this week on sale. The average price you paid for the item will be somewhere between the higher price and the lower price.
That’s how the stock market works. By buying a certain stock at regular intervals, you will be able to pick up some of the shares in it when the price is lower. This is the advantage of regular savings.
In fact, I think there is a reason to buy more stocks when the price is low. The average price paid per share is determined by calculations as explained earlier.
Averaging strategy can also be used in cryptocurrency investing.
Bitcoin is more volatile than the stock market, so a shrewd investor with an eye for a bargain can invest when the price drops.
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 available. Signing up for them is easy; you need some form of identification. Just follow the instructions and you’re all set.
TO SUM UP
Playing the market requires a positive mindset and a cool head. If you have them, you can profit from falling markets. Averaging is a method that takes advantage of falling markets.