fantastic market reaction, page-86

"On the other hand, I can't actually understand the point of averaging up. Regards...Tim."

2 scenarios.

1. Buy $10000 of shares at $4.00 = 2,500 shares
Buy $10000 of shares at $2.50 = 4,000 shares
Buy $10000 of shares at $1.00 = 10,000 shares
Buy $10000 of shares at 0.50 = 20,000 shares

Shares at time of last purchase = 36,500 @ 50c = $18250 for an outlay of $40,000

2. Buy $10,000 of shares at 0.50 = 20,000 shares
Buy $10,000 of shares at $1.00 = 10,000 shares
Buy $10,000 of shares at $2.50 = 4,000 shares
Buy $10,000 of shares at $4.00 = 2,500 shares

Shares at time of last purchase = 36,500 @ $4.00 = $146,000

Scenario 1 presents more risk exposure over scenario 2 and buying the shares on the up means you have greater exposure to more profit.

If they both move at the same rate, (eg 12 months), scenario 2 you have maximised your time for profit whereas scenario 1 you have lost time and money.

Cheers