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Partial Close - Scaling Out Forex Profits

Partial close is a type of exit strategy where the trader plan his trade exit in a number of increments as opposed to closing the whole position at once. This method is performed by closing some of it's overall trade size because the trade becomes profitable and then their profit target.

This method allows traders to capture smaller profits faster while leaving the position open because the market moves farther in their favor.

One major drawback about the partial close method is an imbalance in risk versus reward. Whenever a trader employs the partial close strategy, the amount of profit taken isn't comparable to the amount of risk assumed when the trade is opened.

This method is commonly considered to reduce losses and increase profits, following a idea of banking your profits. Nevertheless it comes with an unfortunate characteristic which has nasty effects on your profits.

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Consider a trader who trades 10 currency lots at a time and a 40 pip stop loss. His total initial risk on the position is 400 pips. If the trader partial closes 1 / 2 of his positions out with a 50 pip profit, he'll have covered 250 pips from the initial 400 pips. The rest of the position should be closed out in a profit more than 50 pips to keep a risk to reward ratio of just one:1.

Traders usually exacerbate the issue by moving their stop loss to break even after partial close with profit. If their remaining position is closed out at break even, they have risked 400 pips to achieve 250. If their next trade is stopped out for that full 400 pips, there is a deficit of 150 pips to overcome on their next trade, assuming they're still trading 10 lots per trade.

The imbalance in risk to reward necessitates the forex trader who partial close his trades to keep a significantly higher success ratio than traders who do not, because just one losing trade can erase the earnings from multiple winners. This imbalance ratio will force the forex trader employing this partial close technique to acquire a high win rate otherwise he'll have to a re- look at by using method as part of his software system.