The art of averaging
Averaging is a term that one can come across in the markets from time to time; what this refers to is the average price paid for a particular stock 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’ve paid for the shares and divide it by the number of shares you’ve purchased in that company.
The answer is the average amount you have paid per share.
Try this math question:
There are five numbers 10, 20, 30, 40, 50
What is the average number?
The calculation:
Add the five numbers: 10 + 20 + 30 + 40 + 50 = 150
Divide the total 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 these days 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 shares at regular intervals, you will pay different prices for each share because share prices go up and down. Imagine if 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 between the highest price and the lowest price.
The stock market works like this. By buying a particular stock at regular intervals, you will be able to pick up a few shares when the price is lower. This is the advantage of saving regularly.
In fact, I think there is a case for buying more shares when the price is low. The average price paid per share is determined by calculations as explained above.
The averaging strategy can also be used when investing in cryptocurrencies.
Bitcoin is more volatile than the stock market, so a savvy investor with an eye for bargains can invest when the price has dropped.
There are so many stock trading platforms available that playing the markets is accessible to everyone. I have joined two of them in New Zealand. Most countries have stock trading platforms available. Signing up for them is easy; You need some kind of identification. Just follow the instructions and you’re all set.
TO SUM UP
Playing the markets requires a positive mindset and a cool head. If you have these, you can benefit from falling markets. Averaging is a method that takes advantage of falling markets.