The formulas
Average price = Σ(Price × Qty) ÷ Σ(Qty)
Shares to buy = Qty × (Average − Target) ÷ (Target − Current price)Worked example
You bought 100 shares at ₹500 and 50 more at ₹440, so your average is (50,000 + 22,000) ÷ 150 = ₹480. The stock now trades at ₹380. To bring your average down to ₹420 you would need to buy 150 × (480 − 420) ÷ (420 − 380) = 225 more shares, costing ₹85,500.
That shows the catch with averaging down: getting the average close to the current price requires a very large extra investment in a stock that has already gone against you.
Frequently asked questions
How is the average price calculated?
Total amount invested divided by total shares: (Price₁ × Qty₁ + Price₂ × Qty₂ + …) ÷ (Qty₁ + Qty₂ + …). Brokers show this as your average cost.
Is averaging down a good idea?
Only when your original reason for buying is still valid. Averaging down a stock that is falling for a real reason increases a losing position. Traders using stop losses generally should not average down.
Why can’t I reach some target averages?
Buying at the current price can only pull your average towards the current price. If your target is below the current price (when averaging down) or the target is the current price itself, no quantity gets you there.
Results are estimates for educational purposes only and are not investment, tax or financial advice. Verify figures with your broker or advisor before acting on them.