Dollar Cost Averaging

Dollar Cost Averaging - This is one of the oldest and most reliable of all
plans to make money in the stock market. All you do is invest a constant
or fixed amount of money into your stocks over a long period of time, no
matter what price the stocks are trading at.

Let's say that you have $500.00 to invest each and every month. You
would simply invest that amount into your stock every month. When the
price of your stock is high you'll get fewer shares. When the price falls to
a lower level you'll get more shares.

For this method to work you should not invest in any stocks that are in
a steady and continuous downtrend. You want stocks that exhibit steady
growth characteristics. You should always diversify your portfolio. This
means that you should put your money into more than one stock.

You also must be willing to put the same amount of money into all of your
stocks each and every month, no matter what. The idea is to sell off your
stocks in future years when your stock prices are high. Remember, you
should always diversify. Don't put your whole nest-egg into one stock.

Averaging Down - Many traders say that this is a no-no. They say that if
your stock starts to fall you should take your loss immediately and move
on to the next one. They refer to these stocks as "dogs". This routine
might be correct for day-trading purposes, but it's not always correct.

Averaging down is simply buying more shares of a stock that you already
own when and if the price falls lower than what you first paid for it. You're
buying more of the same shares at a lower price. Some people say that
this is throwing good money after bad. Not necessarily!

If you did your homework and picked a stock that exhibits all the good
fundamental traits needed for growth and share price appreciation, then
I'd say that your stock is a good candidate for averaging down. It's not at
all unusual for a good stock to temporarily fall below the 52 week low.

If your stock has a long history of cycling up and down off these high and low prices and the fundamentals still look strong, then go for it. Look at it
this way. When the new lower priced shares move back up you'll have a
profit that helps lower your break-even point on all the other shares.