By Warren Seah – The day trader opens and closes all his trades when the market is open during the trading period and does not hold positions overnight. Day trader usually use 1- minute to 15- minute charts.
Why would the partial close method be popular among the day traders?
Partial close method allows for short term trading and also the benefits of riding on longer term trends and profiting from them. This is how it is done:
Entering a trade with multiple contracts that provide the freedom to take a portion of the positions off when a predetermined price is reached based on market structure and short-term behaviour, allowing for the balance to profit in the short run and also capitalising on longer-term market behaviour.
Trading multiple contracts is one of the most misunderstood trading concept. When trading multiple contracts, there is a tendency for traders to take on excessive risk. Multiple contracts allow forex traders to cover part of his position and exit a portion of his contracts at pre-defined take profit level. Next, he will shift his initial stop loss to entry price.
The beauty about using partial close method is when market suddenly stop him out of the trade by hitting his stop loss, he would still make a profit. If his stop loss is never triggered, he will enjoy the rest of the trade participating in the trend for as long as it lasts with no risk, knowing that no matter what happens at the very least he has already bank in a small profit.
It is very important to only trade which 1-2% risk per trade or 5% maximum risk per day. Sound money management is what keeps the professional traders from making money consistently in the long term. Protect your investment equity like you would protect yourself from hazards.
Partial Close Example
Trading Eur/Usd as example, your account size is $25,000 and you choose to risk 2 percent on this trade. Two percent of $25,000 is $500. Your trade entry is buy Eur/Usd at $1.2300, and your stop loss is placed 50 pips away from entry price $1.2250. You will trade with 1.00 (1 standard lot or €100,000) and stay within your risk parameters.
If you get stopped out before having a chance to partial close, your loss would only be 2 percent, which is an acceptable and expected risk. Therefore, this potential risk should not create any trading stress. When your trade becomes profitable, partial close will come into play. After which, stop loss will shift to break-even price ($1.2300) and you will use trailing stop strategies to manage your trade and bank in profits based on price action.
The psychology of partial close method is to reduce stress by locking in profit which would help forex day-traders not only to profit from short market action but also stay in longer-term market behaviour with his remaining positions.
About the Author
By Warren Seah
“Introducing 11 Exit Strategies, What Every Disciplined Traders Need … Go Without It You Could End Up Being A PIP VICTIM Just Like Thousands Of Traders Out There.”
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