You sell half of the stock/crypto when the prices double and then what you are essentially left is termed "house money" as you have gained your initial capital back, and you can let the house money ride as long as possible without worries. Is this a fallacy? As you sell half of it and gained back your initial capital but then again you still need to put that amount into something else and it has to double again, "house money" in reality is still your money. In my opinion, if a stock/crypto is worth holding you might as well not sell anything even after a 2x. I do see some good points in it though, I guess psychologically this method can be effective as the money is viewed as house money, and people would not really panic sell or be as affected emotionally if it goes to zero, and they would let it ride as long as possible which sometimes gives exponential returns. If someone has employed the house money strategy before I would like to hear your thoughts and how did things work it. Would it be better just plain not selling or better yet to trade it?
If you consider it house money then you're kind of admitting you are gambling. If it's in my account it's my money. It's how you look at things. If I buy a stock at 10 bucks and it goes to 20 then falls back to 15 where you sell it, have you made 5 buck or lost 5 bucks?
That's true. I believe it's more feasible to narrow down to say 10 stocks that you will use this method and allocate 10% of your portfolio each. That way there is a higher chance that a few would double.
It is a ridiculous philosophy espoused by Cramer on CNBC. What you paid for the stock has nothing to with the future price of the stock.
After you tell the tax authorities you made $5 and then lost $5 therefore you owe no money, be sure to post on ET your new home address.
your net profit is 5...but it should have been 10. It's about risk management, not taxes. If you asume risk from your entry point instead of marked to market you don't need to worry about paying taxes, because you won't make money in the long run.
You need to analyze your trading in terms of what you are trying to accomplish and your psychology. Are you seeking a few huge wins with many small losses? If so, staying in the full position to fully benefit from a winning position might be the right move. That being said, can you mentally handle watching a huge winner give back much of the gain? Selling half and letting the second half ride is a viable option.