Hands at keyboard
Why you shouldn’t cut your losses

Hi Charlie,

Do you believe in cutting your losing trades short?

If so…

Then you’re likely going about it the completely wrong way.

Let me explain:

Let’s say you’re in a 1:2 risk-to-reward trade.

And price starts moving closer and closer to your stop loss.

If you close the trade at a 0.5R loss so you can ‘cut your loss short’…

There are two big problems with this.

Firstly, if price reverses at that point and ends up hitting your target…

You’ve effectively lost 2.5R.

And secondly, you’re not managing the trade professionally.

You see, your stop loss should be the price that invalidates your trade setup.

So by closing the trade early…

You’re going against your trading plan since you’re prematurely exiting a valid trade.

So next time you feel the urge to close your trade early…

Let it run to either your stop loss or your profit target.

Having a stop loss is already enough to cut your losses short.

And by trying to cut it even shorter… You’re only conditioning yourself to react emotionally to the markets.