Tactics for Newbies: Breaking Down the Wall
‘What a strange title for an article on crypto,’ I hear you say.
Stick with me on this and it will be another tool in your armoury, especially when you have made a bad decision. This builds on and consolidates the principles illustrated in my post on Investment Halving.
Let me explain.
You have made an investment and it has gone catastrophically wrong. It has devalued massively and you are worried it is just going to stay there. You could wait it out, but it may never recover and in the meantime your investment pot is sunk into a deteriorating Crypto which means you cannot invest in a more lucrative Crypto.
You are stuck and it is staring you in the face like a great ugly wall. Here it is:
You have bought a hundred Crypto units (let’s call them ABCx like I did in a previous article). You anticipated a run based on news and predictions on them and although you recognised the price was quite high you thought it was a worthwhile risk.
For the sake of ease I have not included fees in these examples and have exaggerated potential losses for the sake of keeping the figures simple.
So you bought 100 ABCx at £20.00 each, an investment of £2000.00 and then the unthinkable happened. ABCx crashed. Suddenly their value is £10.00. Overnight your investment is worth £1000.00, a loss of 50%. What is worse, such a dramatic loss hardly seems recoverable. It is an insurmountable wall. Even Investment Halving cannot save you!
Or can it? The principles of Investment Halving can be used to leverage and eventually pull down the wall. However it can only work if you have a reserve that you have held back. As always I am not suggesting introducing new capital as prudence should always be applied.
Please read my post on Investment Halving to get a grasp of the principles involved (opens in a new window for convenience). Investment Halving works on the principle of investing an additional £2000.00 in ABCx so your net spending per ABCx is reduced as follows:
Given these figures a 33% increase is required to even break even. Breaking down the wall works on these principles, but is repeated in a loop because just maybe you don’t have another £2000.00 to risk. So this is how it works. Let’s work with £500.00
I buy 50 ABCx @ £10.00 each to add to my ABCx wallet. Now I have 150 ABCx, but I am looking to use these 50 additional ABCx to leverage both profit and easing of my original purchase.
We watch the price closely and it goes up to £10.30 so I now sell (CONVERT if using Coinbase) 49 ABCx as follows:
£10.30 x 49 = £504.70
This means I have made £4.70 profit, based on my second purchase, but more importantly this has leveraged the original purchase into a more favourable position.
- I have already released some profit from my overall Investment.
- I now hold 101 ABCx (the original 100+ the extra one from the second purchase) for which my breakeven figure is now reduced. Here is the maths
Subtract the already realised profit from the original £2000.00 investment (£2000.00 - £4.70 =1995.30) and add the ABCx to the original portfolio (100 ABCx + [50-49] = 101)
Your original investment now, with adjustments looks like this.
Original Purchase with adjustments: £1995.30 = 101 ABCx.
And furthermore there has been a slight reduction in the net purchase cost of the ABCx
New breakeven Sell Figure = 19.75/ABCx
It might not sound like a lot but the figures are moving in the right direction.
… and now simply continue until the lower number of ABCx plus the released profit makes an overall profit achievable.
Repeat as often as need be, but I have done it below in five uniform steps each creating an incremental improvement. Of course a real life scenario will not create such uniformity and you may for example after the first step decide to use £502.00 to leverage a better result (if you do this you need to reduce both your profit taken and the adjusted original investment amount). As part of the uniformity I have suggested that the ABCx price returns to £10.00. This isn’t very likely but remember the point of this example is to demonstrate the principles.
There is a slight rounding issue in the Excel spreadsheet.
Of course the price of ABCx may go down further, or increase more rapidly. The point of the table is demonstrate in a straight line how the requirement for the Crypto value to increase by a third can be broken down into smaller incremental steps.
To repeat myself reducing the wall means taking it down brick by brick which means ironically increasing the number of bricks while decreasing their purchase value in the Original Purchase.
As contradictory as this sounds it will result in the eventual demolishing of the wall and the brick removal actually is all of those small released profits made on each step (in the given example all of these £4.70s amounting to £23.50 in five steps).
Please always remember that investments can go up and down and this should only be used when facing an extreme loss. It is not a guarantee, but is an option if your investment fund is tied up in a failing Crypto-Currency and not only are you losing money, but the only other alternative you face is to move your money to another Crypto and sustain massive losses in doing so.
As always thank you for reading.
Find out more about my investment tips. Feel free to bookmark and tip.
Tactics For Newbies
Crypto Strategies - An Introduction
Milking the Cow
It’s Not All About Money
The Magical Money Tree
Blending Strategies (the Internal Conversion Engine)
Putting the Brakes on!
Breaking Down the Wall