DEFINITION of 'Average Up'

Average up refers to the process of buying additional shares of a stock you already own at a higher price. This raises the average price that the investor pays for all the shares. In the context of short selling, averaging up is achieved by selling additional shares at a price higher than that of the first transaction.


Averaging up into a stock reduces your average price per share. For example, say you buy XYZ at $20 per share, and as the stock rises you buy equal amounts at $24, $28 and $32 per share. This would bring your average purchase price to $26 per share.

It can be an attractive strategy to take advantage of momentum in a rising market or where an investor believes a stock’s price will rise. The view could be based on the triggering of a specific catalyst or on fundamentals. Some investors use a discipline in their averaging up strategies, planning their purchases for when a stock has hit a certain price, while others base their buying on the performance of technical indicators such as moving average, upward trend or up-down momentum, which compares a stock’s average up volume to its average down volume.

Strategies for Averaging Up

Averaging up does have risks though. Investors following an average up strategy could expose themselves to increased losses if they wind up buying company shares just before they fall sharply or if the stock price has hit a peak. Even if averaging up, you can still take profits as the stock rises, by selling small percentages of their position to lock in some gains. That can help to reduce your losses if there’s a sudden reversal in the stock price.

When you average up in a portfolio context, you have to weigh the effect of increasing your position in a stock against the impact on overall concentration. In other words, making sure that weights and investment holding sizes for each stock position are still in line with the target levels you’ve set for the portfolio is still important.

Averaging Up Versus Averaging Down

Averaging up is often contrasted with averaging down, or buying more shares of a stock as its price falls. While averaging down lowers your cost per share, and some advocates of following a value style of investing practice it, the problem with that strategy is that it can lead to greater losses if the stock price continues to fall.

  1. Purchase Price

    The price that an investor pays for a security. This price is ...
  2. Average Price Put

    An average price put is a type of option where the payoff depends ...
  3. Average Strike Option

    An average strike option is an option type where the payoff depends ...
  4. Moving Average Chart

    A moving average chart is used to plot average daily settlement ...
  5. Momentum Investing

    Momentum investing is a strategy that aims to capitalize on the ...
  6. Investment Strategy

    Investment strategy is what guides an investor's decisions based ...
Related Articles
  1. Trading

    Choosing between dollar-cost and value averaging

    Learn more about dollar-cost and value averaging, two investing methods that seek to counter our natural inclination toward market timing.
  2. Trading

    The 7 Pitfalls of Moving Averages

    While moving averages can be a valuable tool, they are not without risk.
  3. Trading

    Simple Moving Averages Make Trends Stand Out

    The moving average is easy to calculate and, once plotted on a chart, is a powerful visual trend-spotting tool.
  4. Investing

    3 Ways to Increase Your Investment Performance

    Learn three strategies for savvy investors to deploy their investment dollars to increase performance and put their money to work in more than one way.
  5. Small Business

    Five Investing Pitfalls To Avoid, According to Investor's Business Daily

    Common sense or common folly? Discover some approaches to circumventing typical stumbling blocks on the road to profitable investing.
  6. Financial Advisor

    Why You Should Never Short a Stock

    Short selling a stock means you are betting on the stock decreasing in price. Before taking on this investment, you should fully understand the risks
  7. Trading

    Adjusting Strategies to Moving Average Slopes

    Managing interrelationships between price, moving averages and slope can shift the reward:risk equation in your favor, learn more in this article.
  1. Weighted Average Shares Vs. Outstanding Shares

    What's the difference between weighted average shares outstanding and basic weighted average shares? Read Answer >>
  2. What's the difference between moving average, weighted moving average and exponential ...

    Moving averages are one of the most popular tools used by active traders to measure momentum. We'll take a look at three ... Read Answer >>
  3. What are the main disadvantages of using Moving Averages (MA)?

    Learn about some of the inherent limitations and possible misapplications of moving average analysis within technical stock ... Read Answer >>
Trading Center