In investing, there are only 3 variables to track:
A) What you have spent
B) How much token you have bought
C) The current price
Knowing these three things allows you to do something like this:
Starting an investment
Pick an investment size. I'll use $100.00, for this example.
So, A starts out as $100.00
B) is just whatever quantity of token you buy for A and the exact number isn't needed for this post. But, whatever quantity $100.00 bought would be the starting point for B.
C) is just whatever the current price is anytime you look at the market.
So, if I do a little math and say:
A / B:
Right now, that would tell me the price I just bought my tokens at, which at this stage, would be C.
This is where the fun starts...
Figure your current standing
Next week, I do B * C (How much token I have * The current price) and find out that value is $90.00 (90% of $100.00 that I originally invested). What does that mean? Well, it means that my investment is down 10%. Well, the trick to this method is any time B * C is 90% or less than my original investment value ($100.00), I spend whatever the difference is to buy more tokens. So, if I'm down to $90.00, I buy $10.00 more.
Whatever you just spent gets added to A (100.00 + 10.00) (How much I have spent)
Whatever quantity you just bought gets added to B (How much token I have)
Figure your Break Even Point (BEP)
This is pretty simple:
A / B = BEP price. If C ever gets to this price, you break even.
Note: Every time your investment drops to 90% and you buy more, your BEP gets lower.
Figure your Profit/Loss
This is a little more complicated:
(B * C) - (B * (A / B)) = Profit/Loss
That's (How much token you have * The current price) - (How much token you have * (What you have spent / How much token you have)).
You can also look at this as:
(B * C) - (B * BEP) = Profit/Loss
If it's a negative number, that's your current loss.
If it's a positive number, that's your current profit.
And honestly, that's all you need to know. Follow these steps and do not sell below your BEP and you will always make a profit.
If you are tech savvy, and understand how to create a spreadsheet to store and display these values for you, then you can buy anything, even if you already own it, and track it in the sheets as a separate subset of your token account.
If you don't get it yet, read this over and over and eventually, you will get it and be a smarter investor for understanding it.
I hope you enjoyed this and don't forget to leave an upvote and maybe follow for some other epiphany I might decide to throw up on the blog.
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But what happens if price keeps going down and you never get back to break even?
What do you do then?
Sell it and write the loss off against your taxes. 😉
😂😂.
A crypto investment is considered a capital investment. Selling what you bought at a profit or loss is considered a capitl gain or loss, for tax purposes. Staking creates an income investment. Selling what you gain from a stake is considered income and taxed as such. That is why it is important to track your expenditures, as I have described, if you wish to navigate tax codes correctly. Converting from one token to another should be looked at as a sell of one asset and a buy of the other asset, using the tracking system I have described in this post.
I still have yet to fully institute this myself. It would be nice if the blockchain could track these transaction types automatically for users, but that would take some serious mathematics and assumptions across wallets.