Partial Close

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ForexTrailer.com

• Partial Close Technique for Preserving Forex
  Profits

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Partial Close

• One of the Forex exit strategies that are
  available at the disposal of Forex traders.
  Partial close is a Forex exit strategy that a
  trader can use to exit his trade in a piecemeal
  fashion instead of just exiting the trade at one
  time. It is used to close a portion of a trade as
  the profits start to roll in so as to secure some
  level of profit no matter what could happen
  later. Partial close helps ensure, at least,
  small amount of profit when trading is favourable.

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The Problem with Partial Close

• There is, however, a big downside to partial
  close in that there is no balance between risk
  and reward. The risk that a trader decides to
  take up when a trade is opened is seldom the same
  as the profit that could be realized. As good and
  vital as partial close is, it could also affect a
  traders profit in a negative manner.

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Partial Close Example
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• Imagine a case where a trader, utilizing a 40
  pip stop loss, he would then have risk 40 pips as
  his total amount risk for that single trade. Let
  us now say that the he decides to perform partial
  close when his trades are in 20 pips profit.

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• If the trader decides to partial close fifty
  percent of his trading positions, he would have,
  thus, covered 20 pips out of the 40 pips risk. To
  maintain a 11 risk-reward ratio, the trader
  would have to close out the remaining positions
  at a higher profit level than 40 pips due to the
  fact that the remaining positions are traded with
  a lower contracts sizes.

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• The problem that partial close could give rise
  to is sometimes aggravated by the actions of
  trader. There are some traders that do shift
  their stop loss to break even immediately after
  they have used partial close to secure some
  profits.

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Implication

• Based on the earlier example, they have put 40
  pips at stake in any single trade to gain 20 pips
  should the remaining position close out at break
  even. Not only that, should the next trade stop
  out for the total initial 40 pips, it then means
  they have to make up for another 20 pips in the
  trade that comes after, that is, if the trader
  continues to trade on the same amount of contract
  size.

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Partial Close Protect Profits but Reduce Rewards

• The fact that there is a disparity between
  risk and reward indicates that the trader who
  uses partial close must record a greater success
  rate relative to another trader that does not use
  partial close at all. This is because a single
  loss is capable of reversing whatever profits a
  trader has realized. The discrepancy in the
  risk-reward ratio requires a Forex trader who
  uses partial close to record large number of
  winnings. Else, it would be better for the trader
  not to use partial close technique at all.

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