Partial Profit Taking and Relative Benefits

Partial Profit Taking – Introduction

You have opened a trade and are in a positive territory. This is the most fulfilling thing for every trader. This is because making money trading is not always a promised thing. People, including some of the best experienced traders lose money. This reminds me of a Barclays trader who lost more than a billion dollars. Remember that when these banks are hiring a trader, they go for the best and pay them handsomely. This incentivises the trader to always do the best he can to make the employer billions. We have also seen the rise and fall of some of the sharpest brains in the hedge fund world. Therefore, it is a very difficult thing to find alpha in the trading world.

Partial Profit Taking – Be Safe and Take Position

When you have opened a trade and is in the positive territory, you have a number of options. One, you can decide to close the trade and lock-up the profits. Alternatively, you can let the trade continue to run until it reaches your preferred place. Also, you have the option to take your profits and let the trade run. Each of these options has advantages and disadvantages. The advantage of closing the trade is that you are secure. You have made your money. The disadvantage is when you find that you would have made money if you hadn’t closed the trade. Not a bad decision though. The advantage of letting it run is that there could be more upside to the trade. The disadvantage is that there could be a reversal that will lead to your profits being squeezed. The advantage of partial profit taking is that it secures your account in such a way that even when there is a downside, you will still have the money you took. An example of a partial profit taking trade. You buy 1 lot of a currency pair, call it GBP/USD. You buy it at 1.3330 and place a stop loss at 1.3300 and a take profit at 1.3400. Your intention is to close a portion of the trade when it hits 1.3365 and then move the stop loss to 1.3330. This is now the breakeven point. In this situation, when the trade hits 1.3365, you will have 35 pips as profit. If there is a correction and now the stop loss is triggered, your total profit becomes $17.50. The trade might go up and your new take-profit will be triggered thus booking you a profit. Therefore, your total profit will be $52. A good example of a partial profit taking strategy is shown below.

Partial Profit Taking – A Simple Strategy

There are a number of reasons why you want to take partial profit. The first reason is that you want to protect your money from a reversal. Remember that reversals happen all the time in trading. That is the main reason why no chart is ever a smooth line. There are tops and dips. Therefore, if you have a buy position, taking partial profits will help you limit your losses in case of a reversal. The second reason why it is important to take partial profits is that it allows you to open other promising trades. This is particularly useful for traders with limited amount of money. Certain times you might open a trade and while it’s still on, you spot a new opportunity. If you don’t have enough money, chances are that you won’t be able to open a new trade. Therefore, by profit taking, you will be at a position to open new trades. The third reason you should consider partial profit taking is when new economic data is about to be released and you still have a trade going on. In this situation, if you are in the positive territory you can take your profits and then place the stop loss and take profit at appropriate levels. This will give you a profit and then protect you when the data is released.

Partial Profit Taking – Useful Links