“Cut Your Losses, Let Your Profits Run.” Fine, But How Exactly?We’ve all heard it. It’s right up there with “buy low, sell high” in the Hall of Fame of obvious trading advice. Everyone agrees with it. Few people do it.
Why? Because cutting losses hurts. Letting profits run is scary (especially in the current macro ). And both go directly against how human brains are wired.
Still, that simple phrase sits at the core of nearly every profitable trading career ever built. So let’s talk about how traders actually do that in the real world.
🧠 Why Your Brain Hates This Rule
Your brain evolved to avoid the bad stuff and lock in the good stuff. Trading puts that wiring to the test.
When a trade is losing, your instinct is to wait — maybe it’ll bounce. So you avoid facing the bad consequences of your decision. It ain’t a loss unless you sell, right?
When a trade is winning, your instinct is to grab the money before it disappears. That’s called loss aversion, and it’s why so many traders end up with small wins and large losses. Revenge trading usually follows.
The goal here is simple: Make the average win bigger than the average loss. Or, even better, have one big winner that can take care of several small-size losses.
📉 Cutting Losses: Think in Probabilities
Cutting losses doesn’t mean being right less — it means being wrong cheaply. “It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.”
Professional traders assume they will be wrong a lot. They build that expectation into their process and risk profile. When a trade moves against them beyond what they originally planned for, they step aside without drama.
“If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.”
A small loss is just a data point. A big loss changes behavior.
The traders who make it treat exits like boring administrative work. Just a clean “this didn’t work, let’s see what’s next.”
📈 Letting Profits Run: The Harder Half
Cutting losses is uncomfortable — but letting profits run is even harder.
When a trade goes your way, your mind immediately starts calculating what you could buy with the gains or how much you’re up just for the day. The idea of losing those profits feels worse than the pain of an initial loss. So traders exit too early, again and again.
The result? They get paid for being right, but not enough to cover when they’re wrong.
Letting profits run means allowing the market to do the work. It means resisting the urge to micromanage every tick. It means giving strong trends time to show themselves.
🧮 The Math That Makes This Work
This rule isn’t philosophical — it’s mathematical (it’s fairly simple, though).
Imagine a trader wins half their trades. If their losses average 1 unit and their wins average 2 units, they’re profitable over time.
But flip it — small wins, large losses — and even being right 60% of the time won’t save you.
Cutting losses protects the downside. Letting profits run expands the upside. Together, they tilt probability in your favor, especially if you’re chasing asymmetrical bets .
That’s the whole game. One good trend pays for ten small losses and the equity curve starts to make some sense.
🧭 The Trader’s Secret Weapon: Risk Profile
The traders who follow this rule best don’t rely on willpower. They rely on a solid risk profile.
They decide in advance:
• How much they’re willing to lose
• Under what conditions they exit
• What signals a trade is still working
By making these decisions before emotions get involved, they remove most of the internal debate when it matters most, especially during high-impact economic data releases .
Trading becomes less about being brave and more about being prepared. In short, the whole thing about cutting your losses and letting your profits run is about embracing small losses without ego and allowing big wins without fear.
Off to you : How do you deal with your losses and wins? Share your approach in the comments!
