1. 📈 Optimize the Risk-Reward Ratio
• In portfolio management, winrate is just one variable in the expected return formula.
• Recipe:
• Even if the winrate is only 40%, if the Risk-Reward ratio reaches 1:3, you will still make a profit. Holding profits is a tool to help you increase the Average Win level, improving portfolio performance.$BTC
2. 📊 Take advantage of the uneven distribution of profits (Fat Tail Events)
• In financial markets, profits are often distributed according to Power Law, where a few orders can account for the majority of total profits.
• If you keep taking profits early, you will eliminate “breakout wins” – big rallies similar to events like BTC going from 10k to 60k USD.
• Academics call this the “Survivorship Edge” – holding a position long enough to benefit from long-term growth cycles.
3. 🧠 Manage the psychological effect of “Loss Aversion”
• According to behavioral finance theory, people fear losing profits more than they expect to increase them (Kahneman & Tversky, Prospect Theory).
• Profit-building helps you overcome this psychological tendency by shifting your focus from “protecting small profits” to “achieving optimal profits based on a set plan.”
• This requires patience and discipline based on data, not emotions.
Conclude:
The market doesn’t require you to be right a lot, but to be right big time. Profit-taking is the way to achieve this by controlling the variables in your expected return formula, overcoming psychological barriers, and taking advantage of breakthrough opportunities.