How to understand “letting profits run” in trading? And how to deal with potential drawdowns?

Let profits run: not prediction, but belief in “positive expectancy”
Many people misunderstand “letting profits run” as holding on no matter what. That’s wrong. Its core is this: when a trend arrives and proves you right, you must have a long enough holding time to cover the costs of multiple small losses beforehand and achieve net profitability.
Mathematically, the win rate of any trend-following system might be only 30%-40%. This means if you trade 10 times, 6-7 of them are small losses or small gains, and only 3-4 of them are big wins, which together account for all the growth in your account’s equity curve. If, at the start of those 3-4 winning moves, you proactively close early because you’re afraid of drawdown, you personally destroy the system’s only source of profit.
So the essence of “letting profits run” is to mechanically execute the system’s positive expectancy, not to use your subjective judgment to catch the top and bottom. Accepting drawdown, in essence, is paying the “insurance premium” for staying in the position and waiting for a big move.
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Drawdown is an inherent cost of holding positions, not a system failure
You feel pain because you treat “floating gains” as “realized profits.” The numbers in your account, before you close the trade, are fundamentally capital that the market temporarily has “with you,” and it can always be reclaimed via a pullback.
Drawdown can’t be avoided because:
1. Volatility is the breath of price. Any trend consists of a series of higher highs and higher lows (or lower highs and lower lows). A pullback is the process formed by that “lower low.” To completely avoid pullbacks is equivalent to trying to catch every small fluctuation—which will trap you into frequent short-term trading, going against the original intention of trend-following.
2. Profit and loss come from the same source. The entry rules you use to capture big moves also cause repeated stop-outs in a range-bound market. Similarly, if you want to capture 80%+ of a trend with your exit rules, it necessarily means you must tolerate the final 20%-30% drawdown. If you try to optimize away that drawdown, you’ll often find the new parameters reduce drawdown but also make you miss the next big trend move. While you reduce risk, you also reduce profits.
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Professional response: upgrade “enduring drawdowns” into “managing drawdown”
To deal with drawdown is not to ask “how do I prevent it from happening,” but to build a handling mechanism so that when drawdown occurs, you know what to do—thereby dissolving anxiety.
1. Define the nature of drawdown: normal pullback vs. trend reversal
You need an objective “trend definition” tool. Is it based on moving averages (such as the slope direction of EMA60), trendlines, or the high-low structure of the Wyckoff theory? You need a yardstick.
· Rule example: If you define a trend by the slope direction of the daily EMA30, then as long as the moving average is still pointing upward, any intraday drop is classified as a “normal pullback,” and you must hold. Only when price breaks below the EMA30 and the moving average levels off and turns down do you define it as a “potential reversal” and initiate the exit procedure. This yardstick prevents you from guessing—you respond by rules.
2. Use “trailing take-profit” instead of “subjective take-profit”
“Letting profits run” isn’t reckless running—it’s running with a safety rope. You need an exit rule that can follow price and protect most of your gains.
· Moving-average trailing: manually exit when price breaks below a key moving average (e.g., EMA21 or EMA55 on the hourly chart), or exit after the K-line close confirms.
· Channel trailing: build a channel using ATR (Average True Range). For example, trigger take-profit if the pullback from the stage high reaches 2× ATR. This line will automatically move up as price makes new highs, locking in more profit.
· Structure trailing: for strong trends, use “higher swing lows” as the take-profit line. As long as price does not break the most recent pullback low, you assume the trend is intact. A break means exit. This is the well-known strategy of “moving the stop-loss to the breakeven point and higher highs/lows.”
The key of these tools is: when price runs smoothly, they make you sufficiently slow to react so you don’t get off too early; when price truly weakens, they allow you to force an exit with rules rather than falling into the psychological trap of “wait a bit and it will come back.”
3. A position-sizing “dimensionality reduction” hit
This is the most overlooked point. When your position size is so heavy you can’t sleep, any small drawdown will trigger your survival instinct and make you do irrational things.
· Professional approach: before opening the trade, calculate that if your initial stop-loss is triggered, you can lose at most 1%-2% of your account. If a position size lets you stay calm even with a 1% floating loss, then when facing a 3% normal drawdown, you can naturally hold without pressure. The first prerequisite for “letting profits run” is to have a position size that keeps your mindset stable.
4. The highest philosophy: accepting partial profit givebacks is a fixed cost of your trading system
Just like opening a shop requires paying rent, trend traders must pay the cost of “profit giveback.” What you can do is not to evade this cost, but to optimize your system so that this cost is paid in the most efficient way, then treat it as a normal expense in your trading business. When you genuinely accept internally that the drawdown profit I was “supposed to earn” is not really mine to begin with, your execution and mindset improve to a whole new level.
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Finally, the philosophical perspective you should plant in your mind when opening a position is: don’t imagine yourself as someone who can predict price precisely—imagine yourself as an excellent risk management manager. Your job is not to judge whether tomorrow will rise or fall, but to ensure that when a trend might come, you have a position size with controllable risk, and then prepare all response plans—letting the market play out on its own. “Letting profits run” is you handing over initiative, so the market completes the final process of turning your knowledge into real results.