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Please enjoy my monologue Practice Makes Perfect with Michael Covel on Trend Following Radio.
A recent newsletter:
“Cut your losses.”
Everyone’s heard it. Everyone says it.
But few really understand what it means or sticks to it when it matters.
Many think it means giving up.
Others see it as a weakness.
And for most people, the moment they should cut a loss, their emotions get in the way.
Here’s the truth:
Cutting your losses is not weakness. It’s the core principle of survival. It’s not about admitting defeat. It’s about staying in the game long enough for the wins.
But even though many know conceptually they should take a loss, most can’t.
And it’s not because they lack intelligence.
It’s because their brain is wired to fight it.
10 Reasons People Don’t Cut Their Losses (Even When They Should)
1. Loss Aversion
Losing hurts way more than winning feels good. So people freeze. They hold onto bad trades longer than they should to avoid that sting.
2. Sunk Cost Fallacy
“If I just hang in a little longer, I’ll get my money back.” Nope. People get stuck because they don’t want to “waste” what they’ve already put in. But that money? Already gone.
3. Fear of Regret
Nobody wants to sell and then watch something bounce back. So they stay put, doing nothing, hoping for the turnaround.
4. Ego Threat
Admitting you were wrong? Brutal. Especially when you think of yourself as someone who’s usually right. So instead, people hold on, praying the market will change to fit their story.
5. Social Comparison
It’s not only about money, it’s about what people think. Nobody wants to be “the one who lost.” So they keep holding and keep bleeding out.
6. Ambiguity Aversion
Selling means uncertainty. Starting over. Not knowing what’s next. Holding on even to something that’s clearly bad make people feels safer.
7. Overconfidence
“This trade just needs a little more time.” Famous last words. Overconfidence makes people think they can outsmart the market. They can’t.
8. Endowment Effect
Once you own something, you’re married. Many start believing whatever is more valuable than it really is. Traders do this like clockwork.
9. Cultural Pressure
We live in a world that glorifies grinding it out, never giving up. But here’s the thing: Quitting losers fast is what winners do.
10. Cognitive Dissonance
You believe you’re smarter than your neighbor, but your account says otherwise. That conflict? Painful. They lie to themselves instead of taking decisive action.
How Trend Followers Cut Losses (System, Not Emotion)
Here’s how the pros do it:
They set their exit rules before they enter a trade.
No gut feelings. No wishful thinking.
Example:
You buy at $100. Your system says:
If it drops to $95, you’re out.
If it rises, let it run.
You follow it, no matter what.
That’s it.
Trend followers might lose on half their trades, but the losses? Small.
And when something runs, they let it run to the moon (if it goes that far!).
Cut small losses fast. Let big winners compound.
That’s the edge. Always has been.
If you don’t have a rule for when to get out, you’re not trading. You’re hoping.
From the Community: A Real Story
Last week, a reader named Dylan emailed me:
“Michael, I was down 40% on a tech trade and just couldn’t sell. I kept telling myself it’d bounce back. Then I re-read your chapter on loss aversion… and finally sold. Two weeks later, it dropped another 20%.”
That’s what this is all about.
Cutting losses isn’t about being right with your ego. It’s about protecting your capital.
Capital is oxygen. Run out, and the game’s over.
The market doesn’t care how smart you are. Or how long you’ve held something.
It only cares about price.
When price moves against you: cut it.
Move on.
Live to catch the next trend.
The Real Edge? Let Go.
You can’t win if you refuse to lose.
Cutting your losses isn’t emotional. It’s not personal.
It’s math.
The best traders cut losses without flinching. Not because they’re robots, but because they’ve trained for it. Their systems handle it, so they don’t have to.
Here’s the part most people don’t want to hear:
The longer you wait to take a small loss, the more likely it becomes a ****ing huge one.
So ask yourself right now:
Where are you holding on, hoping?
And what would change if you let go?
This is trend following.
Dear Michael,
I have read and listened to a lot of your stuff. This is the best you have ever written.
Best,
Robin M.
Thanks.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
Feedback in:
Hi Michael,
I just wanted to express my sincere thanks for your book The Complete TurtleTrader. It fundamentally changed the way I approach commodity trading.
I’ve never felt more confident trading futures. While I’ve slightly tweaked the entry and exit parameters to suit my style, the core principles from the Turtle system remain the backbone of my strategy — and it’s been working remarkably well.
Your work didn’t just educate; it gave structure and conviction to my trading. Thank you for preserving and sharing that legacy.
Thanks,
J. V.
Welcome!
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
Subscribe to Trend Following Radio on iTunes
My guests today are Jerry Parker, Moritz Seibert, Richard Liddle and Gareth Abbot.
Jerry Parker, the founder of Chesapeake Capital Corporation, a global investment manager headquartered in Richmond, Virginia, in 1988. He was an original TurtleTrader, the most successful TurtleTrader.
Moritz Seibert, Founder & CEO at Takahē Capital, a systematic investment manager targeting absolute returns through resilient trading strategies. He is also the co-host at Top Traders Unplugged.
Richard Liddle is the CEO of Bowmoor Capital. Richard is also a former military officer with 21 years of experience serving in both the Royal Navy and Royal Air Force as a helicopter and fast jet pilot.
Gareth Abbot is the Investment Manager of Bowmoor Capital. He is a mathematician by profession and passion and is a Fellow of the Institute of Mathematics and its Applications (FIMA).
The topic is Trend Following.
Jump in!
Feedback in:
Hi Michael,
I am interested in your trend following Essentials course. I’ve been trading for around 5 years now, learned from many services and different educators. Considering that, I’m more inclined to learn from people who are actually traders themselves and preferably making their living off their trading. I saw no mention in your site that you are a trader, but I do know that you did extensive research on trend following systems speaking with many trend following legendary traders (Market Wizards among them). I believe that this is a question you face frequently: Why would a trader learn from someone who isn’t a trader about trading? That is my main question.
Regards,
Dor S.
Fair question. I am not running a fund, so there is no performance posting. But I have helped a lot of people for a long time:
Success
Clients in 76 countries
I’m sure I can help you. Ultimately, what is your risk?
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
Feedback in:
Mike,
Thank you.
I enjoyed the presentation and have started reading “Trend Following“.
I will revert back after following The Starting Steps for 2025.
I like the emphasis on absolute return, system and process. It follows what I did as an insurance underwriter in markets across the globe.
Regards,
[name]
You are welcome.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
Feedback in:
Hi Mike,
I’ve read 2 of your books (“Complete TurtleTrader” and “Trend Following 5th ed”) and they’ve converted me from the Daytrading Dark Side. Your books are comprehensive and I started implementing turtle rules.
But I still have one question: I know each trade should be 1% of capital, but how much of the total account should I deploy at any one time? For example, if I have a $10,000 account, I know that no one trade should risk more than $100. But I’m also supposed to trade every signal. If I’m looking at commodities (ETFs), Forex, and stocks, I quickly get at least 50 trading signals for either System 1 or System 2. At 1%, that’s 50% of my capital deployed.
Are there any turtle rules for how much capital I should deploy, or perhaps the better question, what percent of my capital should I always hold back so that I survive if all investments tank?
Thanks for all the work you’ve put into this. I would never have learned about it if not for your books.
Jack M.
I do help A to Z clients understand trend following and trend following position sizing. The short answer is you use a structure of units, whereby each unit will be a %, ie. 1-2%, etc. Then you have a max number of units to deploy at any one time. That’s to start.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.