Introduction

Managing a trade can be just as challenging as finding an entry. Once a position is open, traders may face the decision of whether to let a winning trade continue or close a losing trade according to their original plan.

These decisions are not always based on market conditions alone. Fear, hope, and the desire to protect profits can sometimes influence how a trader manages an open position. Understanding these emotions can help traders recognize when their decisions may be moving away from their trading plan.

This guide by Upcomers will look at the psychology behind holding winning trades and cutting losing trades, along with practical ways to manage both situations. The goal is to help you make more deliberate decisions based on your strategy, risk management, and trading plan.

Difference Between Holding Winning Trades vs. Cutting Losing Trades

For traders, holding a winning trade means keeping a profitable position open based on their trading plan, such as waiting for a planned profit target or exit signal.

Cutting a losing trade means closing a position when it reaches the trader’s planned loss level or when the original trade setup is no longer valid.

Both are important parts of trade management. The right approach can vary depending on the trader’s strategy, so decisions should be based on the trading plan and risk management rather than short-term emotions.

The Pattern Has a Name

This behavior is known as the disposition effect. It describes a tendency to take profits on winning trades quickly while keeping losing trades open for longer than planned. Economists Hersh Shefrin and Meir Statman discussed this behavior in their research in 1985. Ref.

Later, Terrance Odean found a similar pattern when studying the trading records of thousands of brokerage accounts. The investors were more likely to sell positions that were making money than those that were losing money. Ref.

For traders, this might mean closing a profitable trade because they do not want to lose the profit, while keeping a losing trade open because they hope the market will turn around. Having a clear trading plan can make it easier to decide when to take profit and when to cut a loss. This pattern has also been found in other markets, including Taiwan. However, these studies show a general tendency and do not mean that every trader will manage trades in the same way. Ref.

Why Traders Hold Winning Trades Too Long or Exit Too Early

Imagine a trader taking a gold trade with a 2R target. The trade moves in the expected direction and reaches 1R. Now the trader has to decide: take the profit or give the trade more room?

They might close at 1R because they would rather secure the profit than risk watching it disappear. Another trader might stay in the trade and wait for 2R because that was the target set before entering. If their strategy uses a trailing stop, they may let the trade continue and allow the stop to decide when to exit.

The decision can become even harder when the trade moves well beyond the original target. A trader may think, “It’s still going up, so why close now?” But if the market suddenly reverses, some of those gains can disappear. This is why the way a trader manages a winning position should come from their strategy rather than from what the trade is doing at the moment. For a trader, having an exit plan before entering can make these decisions easier. 

The Psychology Behind Trade Decisions

Trading decisions are not only based on what is happening in the market. How we react to making or losing money can also affect the way we manage a trade.

One idea that helps explain this is prospect theory, developed by psychologists Daniel Kahneman and Amos Tversky. It suggests that people often look at gains and losses based on a reference point. For a trader, that reference point could be the price where the trade was opened. Because of this, closing a trade below the entry price may feel harder since it means accepting a loss. Ref.

Another idea is loss aversion, which means that losses can feel more significant than similar gains. In trading, this may affect how someone handles a losing trade or decides when to take profit. However, everyone reacts differently, so these are only general patterns.

Knowing about these behaviors can help traders become more aware of their own decisions. Having clear entry and exit rules, including a level where you plan to cut a loss, can also give you something to follow instead of making decisions based only on how the trade feels at the moment.Ref.

How Experience and Discipline Affect Trade Management

The tendency to hold losing trades longer than winning trades is not necessarily limited to beginner traders. Research has also found examples of experienced and professional traders showing similar behavior.

For example, one study of a U.S. proprietary trading team found that losing trades were held for longer on average than winning trades. Another study of professional futures traders found a similar pattern among full-time traders, although the researchers did not find clear evidence that this behavior reduced their performance.

For traders, this shows that experience alone may not prevent emotional decisions when managing open positions. The effect can vary depending on the trader’s strategy, risk management, and approach to trade management.

Instead of assuming experience will solve the problem, traders can review their own trade history. Looking at how long winning and losing trades are held can help identify whether profits are being taken too quickly or losing positions are being kept open longer than planned.

How Stress Can Affect Trading Decisions

Stress can show up differently in a trader’s decisions, especially when a trade starts moving differently from what they expected. A trader who normally waits for a planned setup might enter earlier because they are worried about missing the move. Once in the trade, they may also watch every small price change and react to movements they would normally ignore.

For example, a trader opens a gold position and sees the trade move into a loss soon after entry. They know their stop-loss is still some distance away, but the growing unrealized loss makes them uncomfortable. Instead of waiting for the setup to play out, they close the trade early. In another case, a trader may keep a losing position open because closing it would make the loss real.

Stress can also affect what happens after a trade. A trader who has just taken a large loss may enter another position quickly, while a trader who has been under pressure for several trades may become hesitant to take the next valid setup. In both situations, the trader’s decisions may look different from their usual approach because of the pressure they are feeling at the time.

The Impact of Winning and Losing Trades 

How you manage winning and losing trades can affect your overall results. One useful way to look at this is the relationship between your average win and average loss.

For example, if you risk 1R to make 1R, you generally need to win 50% of your trades to break even before costs. If you risk 1R to make 2R, the break-even win rate is about 33.3%. If your average loss is larger than your average win, you need a higher win rate to reach the same break-even point.

This is why a high win rate does not automatically mean a strategy is profitable. For example, a trader could win 70% of trades but make 0.5R on average while losing 1.5R on losing trades. The average result would still be negative. Another trader could win only 40% of trades but average 2R on winners and 1R on losses, resulting in a positive average before trading costs.

Large losses can also require a larger percentage gain to recover. A 10% loss requires an 11.1% gain to return to the starting balance, while a 20% loss requires a 25% gain. This is one reason traders often pay close attention to the size of their losses as well as their winning trades.

For traders using Upcomers, the account’s specific loss and drawdown limits are also important. These rules can vary between programs, so check the current requirements for your account. Keeping losses within your planned risk and the applicable account limits can help you manage the account more carefully.

What Traders Can Do 

Traders should have a clear plan before entering a trade. This includes knowing where to take profit, where to exit if the market moves against them, and how much they are willing to risk on the position.

When a trade is in profit, traders should manage it according to their strategy instead of making decisions in the moment. If the trade starts moving against them, they can review whether the original setup still makes sense rather than holding on simply because they expect a reversal.

Keeping a simple trading journal can also help traders look back at their decisions and find areas to improve. After a significant loss, taking some time away from the market may help them reset and approach the next trade with a clear mind.

Conclusion

Managing both winning and losing trades is part of every trader’s journey. A trader may handle a winning trade differently from a losing one, but being aware of how emotions affect those decisions can make it easier to stay close to the original plan.

There is no single way to manage every trade. What works depends on the trader’s strategy, risk level, and the way they approach the market. For Upcomers traders, having a process they can follow, keeping risk within the account rules, and looking back at past trades can help them understand their own trading habits and make better-informed decisions over time.