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Trading Education Posted by Team Topstep June 2, 2022

Larger Gains and Smaller Losses: What’s The Secret?


One of the most prominent learning curves and obstacles to overcome in trading is keeping your winners larger than your losers. Having worked among retail traders for a decade now, I’ve observed the tendency for new traders to risk much while securing modest profits. However, for most traders, one of the secrets to taking your trading to the next level is developing a good win percentage on trades, taking strict entry criteria, and employing a healthy risk to reward ratio.

Consider this: if you are risking a factor of 1 to earn 1, you need to be successful on 55% of your trades just to cover commissions, data and platform cost, and exchange fees. If you risk a variable of 2 to earn 1, you need 60% winnings to compensate for these costs. This does not even include the higher win percentage needed to generate a livelihood or grow your account.

Also, if you are risking 2 to earn 1, what happens when you go on a four-trade losing streak, which will inevitably occur? At that point, you would have to secure a 90% win percentage over the following several trades just to make up for losses.

On the other hand, if you risk a factor of 1 to earn 2, you can cover your cost with a modest 40% win percentage. Additionally, you will be able to rebound more easily from a losing streak.

Having worked with traders and being one myself, I can attest to the mental and emotional challenges of being patient with winners and impatient with losers. Therefore, this article will approach the concept from a mental and emotional point of view. At the same time, the follow-up article will discuss specific trading logistics that can help you keep winners larger and losers smaller.

Wrap Your Mind Around It!

Sun Tzu says that wars are won or lost in the temple before they are ever fought on the battlefield. When I adapt this to trading, I recognize that successful traders and trading happen not at the charts but in the personal disposition and preparation of the trader. The battlefield of the mind is where it is most crucial to be victorious; otherwise, you’ll never achieve sustainable wins on the charts.

Know Why You Do It

The first step of transitioning into a pattern of risking less to earn more is approaching it cognitively. For example, you might calculate based on your own trading history and determine if you had increased the profit on winning trades by 25% and decreased the deficit on losing trades by 33%, what kind of impact that would have had on your account.

Amazingly, I’ve encountered many traders over time who don’t believe in utilizing a greater reward than risk ratio. Until you are a believer, you’ll never seize the opportunity. So run your own calculations and see what you come up with.

Plan For Success

Once you realize the necessity of taking larger winners while keeping your losers smaller, you need to adapt your trading plan accordingly. This includes looking at charts and identifying spots with strong entries where you can feasibly risk less to employ broader targets. Having a good risk to reward ratio is a start, but revolving your entire market outlook around that ratio is the next step.

Become Mechanical

Okay, so once you have the correct principles and the right plan in place, the next step is strengthening the implementation of our preparation with discipline.

I get it; we start a trade, and we think we will be successful if we widen our stops and negotiate. Sometimes that works, but many other times, the results are detrimental. Or, we decide to move our limit orders closer, compromising our profit. Again, sometimes that works for the best, but other times, it fails.

If we believe in our planning, we should be confident to take the guesswork out and become mechanical. If you don’t believe enough in your planning, I suggest you go back to the drawing board. However, you can set your target and stop on virtually all trading platforms as an OCO order and let the machine work for you.

Why is it that trading is largely algorithmic and program-based? In part because machines don’t get scared and change their plans! If you must, then you should even walk away while in a trade and let your machine manage it for you.

Regulate Emotions

Once your mind is managed, you then face perhaps the most challenging task: managing your emotions. Emotions are not a bad thing; they help direct us in a healthy way. However, mismanaged emotions can often prompt us to think in unhelpful and even harmful ways.

Trading has the potential to bring out the best and worst qualities of a human, and in terms of emotions, it will bring out the worst in us.

So how do you regulate emotions? Good question! There is no one-size solution. However, to reflect on how you may cultivate better emotional management, I’ll list three steps below. 


Yes, I’ve already said this, but I repeat, automate your trading. This doesn’t mean automating every step, but at least the target and risk management. I think most of you will agree that absorbing a reasonable loss is not the worst emotional experience. However, for the majority of traders, the emotional endurance and the process required while a trade is in action are more exhausting. So automate your emotions out of your decision as much as possible. In this case, thinking like a robot can again be a help.

Find Your Healthy Place 

This reinforces something I alluded to earlier. Our emotions tend to be more vulnerable during trade management than after a trade is concluded. If it is most helpful to walk away and let your orders work, then do it. Alternatively, others find that keeping a workout machine beside their desk helps keep emotions in check, or even listening to music. Remember, the goal is not to let yourself get in the way of a good risk management plan.

Keep Handy Notes

This is a trick I personally use, and I know others who have taken the same approach and found it helpful. It may not work for everyone, but for me, it’s crucial. When I write down a trading plan, whether it be risk management, entry criteria, or emotional/mental management, I keep notes on a sticky pad and have them stuck to my monitors.

The result is that I’m reminding myself, sometimes intentionally and other times subconsciously, of my tried and true rules that I can depend on throughout the day. This keeps me disciplined, focused, and my emotions in check.

Sometimes these notes will be simple with one key phrase that will provoke a single memory of when I broke my rules and how bad it felt. This may seem like a petty method, but the value of reinforcement is a superb quality.

Journal Your Emotions

This is a serious and effective tool. If you have trouble managing your reactions, keep a personal journal of your trading emotions. Record the times of day, the market scenario, the feeling, and the bad habits it generated. Eventually, you can synthesize the journaled material into a better self-understanding of what’s happening to you. Then you can adjust your planning to accommodate your emotional makeup.


These are a few things you might reflect on if you desire to keep your winners larger and losers smaller. If you allow yourself to consider these ideas deeply, I do not doubt that the material conveyed here will be helpful. In the following article, we’ll turn from these more psychological aspects to going over practical tips and looking at chart examples. May you find opportunities to keep your losses small and your winnings big. Until next time, trade well!