RE: A thread from our slack chatroom
That's a great post Luc. I wrote up an example, it's pretty clear how you will be in a better position trading than holding .
Person A buys 1 Bitcoin for $2000. He holds it for months, not checking the price, until one day he sees it's at $4500 and sells, making a net profit of $2500. He is still only worth 1 Bitcoin at that point in time.
Person B also buys 1 Bitcoin for $2000. He holds it and is checking the charts, until the price reaches $4000 and then sells. When the price panic drops down to $2500 he buys back in and now has 1.6 Bitcoin! When the price eventually reaches $4500 he can sell for a net profit of $5200 and is worth 1.6 BTC at that point in time.
Of course, that's just a simple made up example. Imagine selling and buying back in multiple times!
I think the math might be off a bit for Person B. After selling the first bitcoin, he has $4000 ($2000 profit). When he buys back in at $2500, he has $1500 cash and 1 bitcoin worth $2500 (1.6 bitcoin total worth, as you noted). When the price reaches $4500, he sells and now has $6000 cash, or 1.33 bitcoin total worth ($4000 profit, since the coins he bought appreciated $2k both times he owned them).
But you are right that participating is where you make the most. You make profit on many of the swings up and down. Whereas the person that just holds and doesn't trade makes profit only on the overall upswing, and not on any of the dips and repeat upswings.
Person B makes 60% more profit than Person A ($4000 vs $2500). And that is figuring in just a couple trades. The difference could be much much more with many trades.
It does help understanding trading to break it down into simple examples like this, and why it is important to sell at the tips, and then wait for the dips to buy back in again.
Sorry if it wasn't too clear, I was trying to keep it simple and assume Person B sells all BTC to USD and vise versa when he buys. So he buys 1 BTC @ $2k the price doubles and ends up at $4k (sells the lot). He buys $4k worth of BTC when it hits $2.5k and ends up with 1.6 BTC. Sells everything again at $4.5k and ends up with $7.2k. Net profit of $5.2k, or worth a total of 1.6 BTC with his initial investment included in that.
Oh, ok. That makes more sense. Thank you for the clarification. I would definitely go for the $5.2k over $2.5k. That's over 2X more profit!
Very good example. I also think it would be even better to give person A and B a certain time frame like 3 months or something. And do the example like: let's give them 2,000 usd each and see who would win or have more btc in 3 months.