We will normally sell our holdings on a negative earning surprise or on deterioration of fundamentals. We manage price targets on a dynamic basis and exit when our targets are met. Now if this happens very quickly we may become a trader and if it happens on a longer term basis we become an investor. But by thought process we are a long term investor. I think they are two independent matters.
Law of average is useful for managing volatility.
Law of average protects you from the systematic risk or the market risk in one way. It helps an investor come over its greed in the bull run and fear in the bear run. However, it cannot protect you from the non-systematic risk. If you try to average on Titanic the end result is very clear that you will sink. Diversification Protects you from the Non-Systematic Risk.