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Averaging down is an investment strategy that involves buying more of a stock after its price declines, which lowers its average cost. A simple example: Let's say you buy 100 shares at $60 per share, but the stock drops to $30 per share. You then buy another 100 shares at $30 per share, which lowers your average price to $45 per share.
The main advantage of averaging down is that an investor can bring down the average cost of a stock holding quite substantially. Assuming the stock turns around, this ensures a lower breakeven point for the stock position and higher gains in dollar terms than would have been the case if the position was not averaged down.
Averaging down or doubling up works well when the stock eventually rebounds because it has the effect of magnifying gains, but if the stock continues to decline, losses are also magnified. In such cases, the investor may regret the decision to average down rather than either exiting the position or failing to add to the initial holding. source.