Cutting losses and letting profits run — two of the simplest yet most headache-inducing strategies for most traders. I’ve seen too many traders fall into the same mindset: when the market is rising, fear of selling early and taking a loss; when the market is falling, comforting themselves with "it will bounce back" and holding on to deep or long-term profits. That’s the psychological trap most people fall into.

In fact, this isn’t a new problem. But today I want to share the risk management method I find most effective when applied.

First, about cutting losses. The principle is very simple: set a stop-loss order immediately when entering a trade, not after. The key is to calculate the position size so that each stop-loss only risks a maximum of 2% of your account balance. There are many online tools to help with this—just search for "Position size calculator." The biggest benefit is that losing trades will always be small — even if you lose 10 consecutive trades, you only lose 20% of your account, leaving room for recovery.

As for letting profits run, this is where most people go wrong. According to Pareto’s principle in trading, only 20% of trades are big winners that generate most of the profit, while 80% are small losses, breakevens, or small wins. To achieve those big wins, the only way is to let profits run properly, not to hold recklessly.

I find the trailing stop method to be the best. Specifically, using PSAR combined with EMA to identify exit points. When the price hits these levels, you’ll know when to take profit instead of just hoping it will keep rising. This helps protect your existing profits while still allowing the position to run if the trend remains strong.

The beauty of this method is that it’s scientific, rule-based, and not driven by emotion or luck. If you haven’t tried it yet, apply it now and let me know the results. This is truly the position management approach I trust the most.