How can I calculate the amount of stock I need to buy to bring the average price down to a specific level?
It’s quite simple—let me walk you through an example.
Imagine you purchase 15 shares of stock A at $12.00 each. The stock then drops to $8.40 per share, and you want to lower your average cost by buying more shares. Let’s say you aim to bring your average cost down to $9.60.
($12 x 15 + n x $8.40)/(n + 15) = 9.60
180 + 8.4n = 9.6n + 144
n = 36
This calculation shows that you should buy 36 additional shares…
((BP1 x N1) + (CP * N2)) / (N1+ N2) = AVG
where
BP1 = initlal price paid
N1 = intial shares bought
CP = current price
AVG is your desired average cost
Put the numbers in and solve for N2
Nobody pays any attention to averages.
The average American family has 2.3 children. However, NOBODY ever actually has 2.3 children.
The average intelligence of a classroom of students has NOTHING to do with anybody actually in that class.
The fact that the average price of stock that you sold was “profitable” changes nothing.
You lost money on some stock, and you made money on some stock.
If you want to be profitable, buy stock lower, and sell it higher.
Buying 200 shares, in order to make your overall numbers come out “right”, when doing so entails too much risk, is foolish. If you can afford 120 shares, then buy 120 shares. Sell them when you can make a profit on them. Use tax lot specifications to reduce your taxes, if any, in a manner that suits you.
If you hate taking losses, then get out of the stock market. You will break your bank, eventually, by attempting to convince yourself that you “never had a losing trade”.
Learn to face the actual facts. You will have less difficulty becoming a profitable trader.