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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 process is performed by closing some of it's overall trade size because the trade becomes profitable and continue to 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 concerning 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 comparable to the amount of risk assumed once the trade is opened.
This process is commonly considered to reduce losses and increase profits, following a concept of banking your profits. Nevertheless it comes with an unfortunate characteristic that has nasty effects in your profits.
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 will have covered 250 pips from the initial 400 pips. The rest of the position must be closed out at a profit greater than 50 pips to keep a risk to reward ratio of just one: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 have risked 400 pips to achieve 250. If their next trade is stopped out for the 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 maintain a significantly higher success ratio than traders who do not, because only one losing trade can erase the earnings from multiple winners. This imbalance ratio will force the trader by using partial close strategy to acquire a high win rate otherwise he will have to a re- take a look at by using method as part of his software system.
