SHREVEPORT, La., Dec. 13, 2004 (PRIMEZONE) -- Stock-Letter-Daily.Com (http://www.stock-letter-daily.com -- an affiliate site of StockPickReport, the web's only non-mainstream stock rating service), rates Time Warner, Taser, OSI Pharmaceutical, and Research in Motion.
STOCKPICKREPORT RATINGS:
Time Warner Inc. (NYSE:TWX) -- WEAK BUY
http://www.stock-letter-daily.com/rating.asp?format=single&ticker=TWX
TASER International (Nasdaq:TASR) -- WEAK SELL
http://www.stock-letter-daily.com/rating.asp?format=single&ticker=TASR
OSI Pharmaceuticals Inc. (Nasdaq:OSIP) -- STRONG BUY
http://www.stock-letter-daily.com/rating.asp?format=single&ticker=OSIP
Research In Motion Ltd (Nasdaq:RIMM) -- SELL
http://www.stock-letter-daily.com/rating.asp?format=single&ticker=RIMM
"Should You Average Down?"
"Averaging down" turns bad trades into cash-sucking liquidity nightmares. We think it's just plain bad decision-making made worse.
Say, a trader buys a stock at $20. Set's a target (good job!) and a stop/loss (okay, that's good too). Then, the stock hits the stop/loss and the trader holds on. Uh oh. When the stock drops further, the trader buys MORE of this stock. The idea (so they think) is that if the stock then moves up to the midpoint of where the original trade was made to the new entry point, the combined profit/loss will be a wash.
Okay, now let's talk about this in REAL terms, not "fantasy": A) If a trader breaks the stop/loss, they've already made a mistake (not because we said so, but because THEY said so when the set that stop/loss!), B) Trades should be made based on the question of WILL THIS TRADE MAKE ME MONEY, not WILL THIS TRADE MAKE UP FOR THE MISTAKE I JUST MADE.
See, stocks are INANIMATE objects. They have no emotions. They have no agenda. They are NOT human. Yet, many traders seem to make deals with stocks as if they can coax a stock back up.
It's kind of like a person that talks to God every time he gets drunk and says, "God, please get me home without a DWI. I promise I won't get drunk again." Guess what happens next time that person drinks too much? Yep, they make that "promise" to God all over again. What the drinker needs to do is NOT DRINK.
If a trader makes a trade that goes against them, they should RECOGNIZE the "bad trade" for what it is, and move on.
Now, let's look at the numbers. If a trader buys a stock for $20 and it drops to $18, they've lost 10%. Let's say they bought 500 shares of a $20 stock. Now, at $18 they are down $1,000. They then decide to "average down" and buy 500 more shares at $18. They've now spent $19,000.
What's the goal? Suppose they want to get out at $19. If the stock goes to $19 they are now DOWN $500 from the first (mistake) trade, and UP $500 from the second trade. So, they risked $19,000 to BREAK EVEN. However, if the stock drops from $18 to $17 they are now down on both trades.
They are down $1500 from the first trade and $500 from the second. That's a total loss of $2000 or 10.52% -- OUCH.
Stocks can either go up, down, or stay flat. In the "average down" scenario a trader really is hoping for a break-even but if the stock stays flat the trader WON'T EVEN BREAK EVEN. Averaging down just plain doesn't make sense. There are 2 ways to lose and only one way to win. We don't like those odds.
WHAT THESE RATINGS MEAN:
StockPickReport.Com ranks stocks with technical analysis. These ratings do not indicate a "long term" view. These ratings reflect an opinion for the short term. These ratings may change based on market conditions.
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If the links to our ratings above do not work, please use these:
Time Warner Inc. (NYSE:TWX) -- WEAK BUY http://www.stockpickreport.com/rating.php?sym=TWX TASER International (Nasdaq:TASR) -- WEAK SELL http://www.stockpickreport.com/rating.php?sym=TASR OSI Pharmaceuticals Inc. (Nasdaq:OSIP) -- STRONG BUY http://www.stockpickreport.com/rating.php?sym=OSIP Research In Motion Ltd (Nasdaq:RIMM) -- SELL http://www.stockpickreport.com/rating.php?sym=RIMM