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Partial Close - Scaling Out Forex Profits

Partial close is a kind of exit strategy in which the trader plan his trade exit in several increments as opposed to closing the entire position at once. This process is performed by closing a portion of it's overall trade size as the trade becomes profitable and then their profit target.

This technique allows traders to capture smaller profits faster while leaving the position open as the market moves farther within their favor.

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

This process is often thought to reduce losses and increase profits, following a idea of banking your profits. Nevertheless it has an unfortunate characteristic that has nasty effects in your profits.

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Think about a trader who trades 10 currency lots at a time along with a 40 pip stop-loss. His total initial risk on the position is 400 pips. If the trader partial closes half of his positions by helping cover their a 50 pip profit, he will have covered 250 pips from the initial 400 pips. The remaining position should be closed out at a profit greater than 50 pips to maintain a risk to reward ratio of 1:1.

Traders usually exacerbate the issue by moving their stop loss to interrupt despite partial close with profit. If their remaining position is closed out at break even, they've risked 400 pips to gain 250. If their next trade is stopped out for that full 400 pips, they have a deficit of 150 pips to beat on their own 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 much higher success ratio than traders who don't, because only one losing trade can erase the profits from multiple winners. This imbalance ratio will force the trader employing this partial close strategy to achieve a high win rate otherwise he will need to a re- look at by using method in their software system.