When a trader buys an asset, the asset's price falls, and if the trader buys more, this is known as averaging down. Averaging down is so named because the average cost of the asset or financial instrument has been reduced. As a result, the point at which a trade can become profitable has been reduced.
The decision to average down is dependent on the circumstances. If the price of the specific asset rises, the original trade becomes more profitable, and your average entry price falls.
If the asset's price then falls, the original trade's loss grows even larger. As a result, traders disagree on whether or not averaging down is a viable strategy.

Averaging down is an investment strategy where an investor buys additional shares of a stock they already own after the price has declined. The goal is to reduce the average cost per share of the total investment. For example, if an investor initially buys shares at $50 each and the price drops to $40, purchasing more shares at the lower price reduces the average cost per share. This strategy can be beneficial if the stock price eventually rebounds, allowing the investor to profit more significantly from the increase. However, averaging down also carries risks, as it involves investing more capital into a declining stock, which could continue to decrease in value, leading to greater losses.