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Averaging May Be Worth A Shot Right Now

I have said in past weeks that I believe the mid-40s would provide support for WTI prices, and so far that has been the case. There has hardly been a spectacular rally but with WTI and Brent both posting gains in the last few days the rout has been stopped, at least for a while. For the opportunists among us that means that now is a good time to start looking for opportunities.

Those who have been burnt a few times on the way down by trying to pick a bottom may not want to over commit, even at these levels. With the IEA stating that they are seeing signs that "...the tide will turn..." before too long, though, here may be a good place to start averaging into a few positions. My trading room background makes me averse to the word “average” when it comes to position management as it is usually used as a desperation tactic by those who cannot bear to cut a loser. In that case averaging usually just turns a misfortune into a disaster. There are, however, two occasions on which averaging can be okay. First, averaging a winner is fine. Second, intentionally averaging into a position can be a good idea in volatile markets.

The idea is pretty simple. Find a stock that has been dragged down with everything else but faces fewer problems than many, and then divide your potential investment into, say, four trades executed at regular intervals. In this case, where the trades are longer term by nature, the gap between purchases could be as long as a month. If you…

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