ShaylynnWiggs938
Partial Close - Scaling Out Forex Profits
Partial close is a kind of exit strategy in which the trader plan his trade exit in a number of increments instead of closing the entire position at once. This process is conducted by closing a portion of it's overall trade size as the trade becomes profitable and continue to their profit target.
This method allows traders to capture smaller profits faster while leaving the positioning open because the market moves farther within their favor.
One major drawback concerning the partial close method is an imbalance in risk versus reward. Whenever a trader employs the partial close strategy, the quantity of profit taken isn't comparable to the quantity of risk assumed when the trade is opened.
This process is often thought to reduce losses and increase profits, following the idea of banking your profits. Nevertheless it comes with an unfortunate characteristic that has nasty effects on your profits.
Consider a trader who trades 10 currency lots at a 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 remaining position should be closed out at a profit greater than 50 pips to keep 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 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 beat on their next trade, assuming they are still trading 10 lots per trade.
The imbalance in risk to reward requires the trader who partial close his trades to keep a much 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 technique to acquire a high win rate otherwise he'll have to a re- look at by using method as part of his trading plan.
