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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 the same time. This process is conducted by closing a portion 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 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 amount of profit taken isn't comparable to the quantity of risk assumed once the trade is opened.

This method is often considered to reduce losses and increase profits, following a concept 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 any given time along with a 40 pip stop-loss. His total initial risk around the position is 400 pips. When the trader partial closes 1 / 2 of his positions out with a 50 pip profit, he will have covered 250 pips from the initial 400 pips. The rest of the position must be closed out at a profit more than 50 pips to keep a danger to reward ratio of 1:1.

Traders usually exacerbate the problem by moving their stop-loss to break 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 the 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 trader who partial close his trades to maintain a significantly higher success ratio than traders who do not, because only one losing trade can erase the profits from multiple winners. This imbalance ratio will force the forex trader employing this partial close strategy to acquire a high win rate otherwise he'll need to a re- take a look at employing this method as part of his software system.