# Am I losing money with swing trading?

— 4 minInvesting and managing my finances is one of my hobbies. And this year, markets seem to be pretty much in bubble territory due to AI.

So I am riding the waves of stock prices, and I am trying to rebalance my holdings and cashing in on some profits.
But I want to also maximize those profits as much as I can, and to do that I am trying something new:
**Swing trading**, which means selling high (obviously), but then to also buy the dip a few days later.

So the idea is that I end up with the same amount of shares, but I can pocket the difference of selling high and buying back low. But then reality in the form of taxes hits, and the amount of taxes I have to pay on profits can exceed the swing-trade difference.

Lets look at a small example, first without any swing trading:
Assume that I have bought *10* shares for a price of *10€* each some years ago.
Now they have bubbled up to *110€* in price. If I sold all of them today,
my profit would be the difference between selling price today and the buying price I payed years ago.
In this case the difference is *100€*. That is the profit I have to tax, using the Austrian capital gains tax of *27,5%*.
So at the end of the day, after taxes, I would end up with *72,5€* of net profit, per share, for a total of *725€*.

But those are all *what ifs*. The markets are volatile, and the bubble might burst any day. Maybe tomorrow the shares
crash down to *20€*, at which point my potential profit would only be *10€* per share before tax, for a total of *72,5€* after taxes.

Now lets look at a simple swing trading example.
Again, we assume that I bought *10* shares for *10€* each.
Today I am selling *a small fraction* of those shares (*1* in this example) for *110€*.
Same math as before applies. I owe *27,5%*, or *27,5€* in tax for that sell.
Tomorrow the shares dip a little bit to *100€*, and I buy the dip.

So I sold for *110€*, then bought at *100€*, pocketing the difference of *10€*, right?
Well, except I owe *27,5€* in taxes for the sell, which means factoring in those taxes,
I effectively *lost* money with that swing trade, *17,5€* to be exact. **Say what now?**

The thing is that I am *paying taxes forward*. The *buyback* I did changes my average share price,
which is considered for the *next* time I will sell. Different countries have different rules for this.
In Austria, a *buy* maintains a weighted average.
In our example, it means the following: I started off with *9* shares bought for *10€* each years ago for a total of *90€*.
Now I buy one more share for *100€*, for a total of *190€* invested, or *19€* per share. That is my new weighted average.

Tomorrow the shares will climb to *110€* again. If I were to sell them all, my profit would then be *91€*, and owing only *25,025€* in taxes per share.
This would leave me with a total net profit of *749,75€*.
Factoring in the *loss* I made before on the swing trade, the total would be *732,25€*.

Or in other words, *7,25€* more in this hypothetical example as if I didn’t do the swing trade.

Buy speaking of hypotheticals, what if the share price plummets to *20€* once again.
If I were to sell all, due to the change in the weighted average, my profit would only be *1€* per share, for a total of *2,75€* owed in taxes.

So I sold all the shares for *200€* total, having payed *17,5€* up front, and *2,75€* for the final sell.
Minus the *initial* investment of *100€* leaves me with a total net profit of *79,75€*.

This is again *7,25€* higher than without the swing trade even in case the share completely tanks.

And those *7,25€* is by the way what remains of the *10€* in swing trade difference after taxes, which is true for *all* the swing trades.

## # Conclusion

So, do I actually make a loss playing around with swing trading? **Yes**, but only *short term*.
*Long term*, the price difference on the swing trades translate to real profit.

This is true for all the swing trades I am making, each sell-buy difference adds up to the long term profits.

With one caveat though: as long as I am still operating at a total profit relative to my *weighted average* price base.