Personal Finance & Money Asked on December 8, 2021
I assume that I trade an asset. I bought it with a price of 650. I sold it with a price of 750. Then, I bought it again with a price of 700.
Did I earn because it raised from 650 to 750? Or did I loose because I first bought it with 650 then, I bought the same thing again with higher price (700)?
It was already with me. So, why should I buy it with a higher price?
I know that I won 50 in the previous example because at the end of the day, I had the asset plus 50.
But I need understand when should I buy with a higher price and still win? Does it depend on the peak price where I sell or what? What if I sold it and the prices didn’t fell (constantly raising). In this case, I will definitely loose when I buy again, right? So, in this case I should only buy the asset and sell it on emergency only, right?
First you had 650€ and no asset. So your net worth was 650€.
Then you bought the asset. You then had 0€ and an asset worth 650€. Your net worth was still 650€
Then that asset increased in value, so you now had 0€ and an asset worth 750€. Your net worth was 750€, which is 100€ more than you started with.
You then sold that asset. You now had 750€ in cash and 0€ in assets. Still 750€ net worth.
You then bought an asset for 700€. Now you have 50€ in cash and 700€ in assets. Your net worth is now still 750€.
But now that you again own an asset of fluctuating value, your net worth might again change depending on how the value of that asset changes. Perhaps the price goes up again, then you win. Or perhaps the price of the asset falls further, then you lose.
You don't win or lose when you trade. You win or lose when the price of an asset changes while you own it. So a perfect trader would be one who owns assets while they raise in value and does not own any assets while they fall in value. If you could predict the future, you could make the most money by buying or selling just before the price changes direction. Buy just before the price changes from falling to raising and sell just before the price changes from raising to falling. Unfortunately nobody can predict the future.
Answered by Philipp on December 8, 2021
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