Cutting Losses, Letting Winners Run
Two separate psychological disciplines Livingston credits for his biggest gains — and blames himself for abandoning during his worst losses.
A specific discipline Livingston repeatedly credits for his biggest successes, and repeatedly blames himself for abandoning during his worst losses: cut a losing position quickly, before a small, manageable loss grows into a large, dangerous one, and let a winning position run for as long as the underlying trend and reasoning remain intact, rather than taking a small profit prematurely out of impatience or fear.
He's specific about the psychological difficulty of actually doing this consistently — cutting a loss requires admitting, in real time, that a specific decision was wrong, which is uncomfortable in exactly the way ego and ordinary human psychology make it uncomfortable; letting a winner run requires resisting the pull to lock in a smaller, certain gain rather than risk giving some of it back, even when the underlying reasoning for holding remains sound.
This is one of the book's most directly, explicitly repeated lessons — Livingston states it plainly multiple times across the narrative, and traces several of his own largest losses directly back to specific instances of failing to apply it, most often by holding a losing position too long out of stubbornness or hope.
This chapter builds directly on the previous two, since pivotal points and the line of least resistance are primarily about entering a position well — this chapter is about what happens after entry, once real money is committed and the position's outcome is no longer purely hypothetical. Livingston's account is candid that this ongoing management phase, not the entry decision itself, is where he did the most damage to himself across his career.
| Cutting losses quickly | Letting winners run | |
|---|---|---|
| What it requires | Admitting, in real time, that a specific decision was wrong | Resisting the urge to lock in a smaller, certain gain out of fear |
| The psychological pull against it | Hope that the position will recover, avoiding the discomfort of admitting error | Fear of giving back an existing paper gain |
| Livingston's own record | Credits this discipline for his largest gains | Blames abandoning it for several of his largest losses |
Closing a losing position at a small, defined loss requires accepting, immediately and concretely, that a specific decision was wrong.
Livingston's own account describes a specific mental trick that makes this easier to procrastinate on: as long as a losing position remains open, its eventual outcome is technically still unknown, which lets a trader postpone the discomfort of a confirmed mistake indefinitely by simply not closing the position. Selling at a defined, small loss removes that ambiguity entirely and forces a concrete verdict on the decision — which is exactly what makes it feel so much sharper than watching an open loss quietly grow.
This is a much sharper and more immediate form of discomfort than simply watching an open position drift lower while telling yourself it will probably recover — which is precisely why so many investors let small losses grow into large ones through simple avoidance of that sharper, more immediate discomfort.
The instinct to lock in a gain — converting an uncertain paper profit into a certain, realized one — is a completely different psychological pull than the one covered above, driven by fear of loss rather than avoidance of admitting error, and Livingston's own account treats mastering both pulls as two separate, equally necessary disciplines rather than two versions of the same lesson.
This second pull is, if anything, more counterintuitive to resist, because taking a profit feels unambiguously good in the moment — there's no discomfort to avoid the way there is with a loss, only the quieter, easier-to-ignore cost of an opportunity not fully captured. Livingston's own account suggests this made it, for him personally, an even harder habit to break than cutting losses, precisely because the immediate feedback from taking a profit is uniformly positive.
Imagine a trader who enters a position at a well-reasoned pivotal point, sees it move against them by a small, predefined amount, and closes it immediately rather than hoping for a recovery — discipline one, applied correctly. Imagine instead the same trader enters a genuinely sound position that moves favorably, and rather than taking an early, modest profit out of nervousness, holds it as long as the underlying reasoning and the trend both remain intact, eventually capturing a far larger gain than an early exit would have allowed — discipline two, applied correctly. Both disciplines were tested in the same trade, at different moments, and both required overriding a different, specific emotional pull.
- Cutting losses quickly requires admitting a specific decision was wrong, in real time — a sharp, immediate discomfort many investors avoid.
- Keeping a losing position open lets a trader postpone that discomfort indefinitely, since the loss isn't "confirmed" until the position is actually closed.
- Letting winners run requires resisting a different pull entirely: the fear of giving back an existing paper gain, which feels uniformly good to lock in.
- Livingston explicitly credits the first discipline for his largest gains and blames abandoning it for several of his largest losses.
- These are two separate skills driven by two different psychological pulls, not one single lesson applied twice.