One question bothers me a long time and I am not sure if there is anyone that thinks about this before. Let's say you invested $10K in Bitcoin when the price was $20K, and some time later the price pumped to $40K, which means the initial capital is now worth $20K. For some reason, you need cash urgently so you decide to sell the Bitcoin you own for cash. You do it and now you have that $20K on hand.
In this process of trading, your profit is $10K for sure, regardless of whether the Bitcoin price will pump or dump. If you won't invest again, this beautiful success should be what you are proud of. However, 99% of us will choose to buy again and hope for the next success. However, now you buy at $40K and the price may drop to a new low below $20K later, and the profit you gained from last trading may be eaten up gradually by the market dump.
Connect the two dots(two extreme conditions) and draw a curve, high chances are that at last, your profits from all investments may not be that much, at least much less than what you expected when you first gained that $10K. Therefore, all the occasional profits between investments may become fixed or variable costs that these investment must pay.
Does this sound logical to you ? What do you think of all the interval losses from the investment gains ? Please let me know.
It's definitely a blindspot that many people have when they come to determining how successful they are at trading and it's a similar effect to what we see with gamblers. There is a tendency to hone in on the few large wins, but overlook the many small losses which often wear down your investments. It is only when you completely cash out that you can judge your profitability, in the scenario you've highlighted, no profit was made by the trader at all - they probably also lost money because the value of what they invested was being inflated away in fiat terms during that timeframe as well. These sort of assets are also not producing anything of value, so you don't naturally get an income from dividends or profit reinvestment like you would with a share of a company.