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Partial Close - Scaling Out Forex Profits

Partial close is a kind of exit strategy in which the forex trader plan his trade exit in a number of increments as opposed to closing the entire 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 technique 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 technique 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 quantity of risk assumed when the trade is opened.

This process is often considered to reduce losses and increase profits, following a idea of banking your profits. However it has an unfortunate characteristic which has nasty effects on your profits.

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Consider a trader who trades 10 currency lots at any given time and 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 by helping cover their a 50 pip profit, he will have covered 250 pips of the initial 400 pips. The rest of the position should be closed out at a profit more 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 interrupt even after partial close with profit. If their remaining position is closed out at break even, they have risked 400 pips to gain 250. If their next trade is stopped out for that full 400 pips, there is a deficit of 150 pips to beat on their own next trade, assuming they are still trading 10 lots per trade.

The imbalance in risk to reward necessitates the forex trader who partial close his trades to maintain 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 forex trader employing this partial close technique to acquire a high win rate otherwise he'll have to a re- take a look at by using method in their software system.