Forex trading is, without a doubt, a very speculative type of investment that requires making very good and suitable market predictions that make your chances of generating profit higher.
While losses are an inherent part of the world of forex trading, a number of measures have been created since modern forex trading has come around that can be used by traders to not only protect their own capital, but also to potentially increase their success rate in individual trading sessions.
Before a trader opens a new trading position, he/she should evaluate the market situation using one of the available analyses. Once the trader has the relevant analysis results, he has to decide correctly, based on the chosen strategy, where other various trade orders will be placed after entering a position (Stop-Loss, Take-Profit, Trailing Stop-Loss, closing the trade for the market price and more).
This article will not tell you about all the individual order, what we would like to tackle, at least partially, is the issue of frequent closing of profitable or losing positions.
Why use “partial” Stop Loss / Take Profit?
First things first, it is necessary to explain what partial take-profit and stop-loss mean. Most traders will know that stop-loss and take-profit are trade orders whose primary function is to protect your financial capital.
These trade orders give out orders through the trading platform and close an open position after reaching a certain amount.
Partial stop-loss or profit-target closes only a part of an open position and not the whole position.
Unfortunately for traders, many platforms nowadays are missing the partial stop-loss or profit-target function and that is because many traders close parts of their trades manually, or they use an Expert Advisor (EA - automated trading system), which closes positions according to previously set criteria, for this purpose. In this case, it would be a semi-automated trading system because the trader should enter trades manually and the EA should then close the open positions.
The trading platform MetaTrader4 also allows to open several trades at once for the same price, and then set individual stop-loss and profit-target orders for each trade.
Is it time to close a part of a losing/profitable trading position?
Every trader feels good when his open position is profitable. Such moments not only make the trader feel good but also fill him with confidence and self-esteem that wasn’t there before. And it is these moments that, in most cases, decide whether a trader will profit or lose long term. Professional traders usually try to contain their emotions in such situations and keep entering positions rationally, traders on the other side of the spectrum often enter positions only based on “euphoria” caused by the profitable trade.
Decisions made when trading on forex should never be based on emotion but on objective market analysis and the current market conditions.
For example, when the trend is strong on the market and the trade is going in the right direction, it makes sense to keep the position open as long as possible. To prevent the market triggering stop-loss and closing a position at any mild correction, it is generally common by traders to use partial stop-loss, which serves to protect the trader’s hard-earned money and to keep the trade from being closed prematurely.
There are five levels, which will gain the value of one through five to make it simple. A trader opens a position the size of three units on level 1, the market moves to level 4 and so the trader decides to place a stop-loss at level 3. Then a mild market correction happens and the market moves to level 3 and so the whole trade closes and the trader gets 3 units (the size of the position) times 2 levels (2 levels because the spread between level 1 and 3 is two), making it 6 altogether.
However, if the trader used partial stop-loss, in this case, a partial stop-loss that closes only 1/3 of the position on level 3, and with the same thing happening at levels 2 and 1, the same correction would result in the closing of only a third of the position on level 3 and once the market recovered and moved, for example, all the way to level 5, the trader would get 1 unit times two (the triggered stop-loss) and two units times four, making it 10 altogether.
This principle is used similarly for profit-target when a trader isn’t sure if the market has enough strength to keep on going in the direction of the current trend. It results in a part of a profitable trade closing, which not only partially protects the profit, but also makes it possible to make the profit gained even higher.
Regardless of what decisions traders make, they should always have a dependable risk-managing strategy prepared to protect their trading account from any situation on the market.
You can try trading without risk and for free on the demo account at Purple Trading, a forex broker regulated in the whole European Union. You can set up your demo trading account here: https://www.purple-trading.com
About the Author:
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com .
P.M. Purple Trading is a trade name owned and operated by L.F. Investment Limited., 11, Louki Akrita, CY-4044 Limassol, Cyprus, a licensed Cyprus Investment Firm regulated by the CySEC lic. no. 271/15.