Taking partial profits is not unusual in the trading world. In a typical scenario, successful trades are allowed to run their course and return full profits. However, global markets are hardly known for their stability and more so the FX scene.
Partial profits are taken early on before the trade runs to completion. Under normal conditions, you wouldn’t want to interfere with a seemingly successful deal. However, some circumstances force traders to take partial profits.
Since a significant number of active traders lose money, taking partial profits could be the lifeline that will help protect your capital. In this writeup, find out how you can take partial profits off your trade. This article will only consider the MT4 platform owing to its popularity.
Understanding Partial Profits
Partial profits point to a reduction in the size of expected revenues. Partial denotes something that isn’t complete and hence taking partial profits means that you will only get a portion of the expected income from your trade.
Traders are often aware of the status of their trade by merely gauging the market environment. They are thus capable of telling a winning trade from a losing one early on and therefore, can mitigate against the potentially loss-making one by taking partial profits.
However, you don’t need to see a potential loss to take partial profits. If you have a potential winner among your trades, there are several possibilities you can consider moving forward.
- Allow the trade to run to the end and reap the full profit from such a trade
- Close the trade and lock your profits
- Allow the trade to run while taking profits
But even if you are in a winning scenario, taking partial profits is still an option on the table. But why?
Clearly, allowing your winner to complete its course will ultimately reap much larger profits. All you need is some time to wait it out. However, if a reversal were to happen along the way, then you will lose out.
On the other hand, if you close your position, you are likely to realize much more profits had you allowed the trade to run its course. As such, taking partial profits is still a viable option if you have a winning trade on your hands.
How To Take Partial Profits On MT4
So after creating your trading platform on MT4 and activating an order, here’s how you can take partial profits from the trade.
- Reduce the trade volume in the order window. Take it down to the amount you would wish to draw a profit from. What remains will continue to run the trade to completion.
- Reducing the trade volume is a modification of the initial trade. Therefore, head to the terminal window at the bottom and locate your trade. A simple right-click will give you several actions which you can perform on the trade. You can close, modify, or even open a new order.
- Once you opt to modify your order, you will receive a dialog box in which you shall select ‘Market Execution’ on the Type Section.
- Now you can scale down your order so that you can close a portion of it. What you select is the amount you wish to close and not what will remain. Once selected, engage the ‘Close’ button to complete the order. At the terminal window, you will see the portion of your volume that remains.
The MetaTrader platform allows you to partially close some of your trades. Remember, to take partial profits from the order, you need to settle on a section of your position. To do so, you will have to reset your lot size so that as you take a portion of the profit, the trade continues to run.
Why Should You Consider Taking Partial Profits?
One of the primary reasons for taking partial profits is to protect your earnings in case a reversal in the market occurs. However, other situations can necessitate a premature take profit order such as news releases. We shall consider these later on.
To protect your earnings
While trading, the end goal of any participant is to grow their portfolio. Profitable trades do a stellar job of increasing your investments. While losses are not uncommon, mitigating them is a worthwhile endeavor since you don’t want to lose money.
Taking partial profits is a frequent move traders employ to secure their earnings from a promising trade. Your earnings could often be significantly more if the trade was left to complete its predetermined course.
However, market reversals occur, and as a result, you could lose not just what you have accumulated over time, but also what you had riding the trade.
While the market trends regularly, your asset will be increasing in value. However, as the market begins a downtrend, it loses value with every dip in the price curve. Taking partial profits acts a sort of insurance policy against market reversals and comes in handy to make sure you get to keep what you earned during the rally.
For beginners, premature Take Profit orders are not uncommon. Newbies usually operate on limited capital and market reversals could potentially wipe away anything they had held up. If you want to guarantee that your market presence long enough to realize meaningful gains, you will ultimately have to take partial profits.
Other reasons why you might consider partial profits?
There are other motives for taking partial profits. Most of these, however, point to an uncertain market in the future. An unreliable market cannot be predicted and it is likely to trend downwards. This will ultimately bring about losses hence the need to grab what you already made in the trade.
Here are a couple more reasons why traders take partial profits.
Ø Overbought and oversold market conditions
Because of oversold or overbought conditions, asset prices tend to move in a given direction for longer than anticipated. This situation cannot hold forever, and traders can always expect a reversal in the market.
Ø You have spotted another more rewarding move
While you aren’t advised to be hasty when taking on new positions, you cannot ignore potential winning trades. Gauge the possible outcomes patiently, at first. Afterward, after all the indicators point to a promising move, you can take partial profits and engage in the new trade.
Ø News release
Because trading often has a global reach, the markets are highly susceptible to the effects of global news releases. Events taking place on one side of the globe usually affects the value of a currency elsewhere.
For example, since the US economy is the largest in the world, fluctuations in the value of USD has far-reaching consequences in other markets. That is why traders are usually keen on any news that upsets the market.
News releases can make or break the value of a currency. If you were trading the affected pair, then taking partial profits is a probable move to make after significant news events.
Ø Commitments elsewhere
Traders are continually monitoring the performance of their trades. If, however, you aren’t in a position to do so, you might cut it and return another time. Traders who are committed to constant monitoring and analysis of the markets routinely make money off the activity. So if you are committed elsewhere and are unable to see your moves to fruition, you can close the trade and grab whatever profit the move generated.
The Downside To Taking Partial Profits
Taking partial profits often guarantees you a positive outcome in your trade. On the other hand, however, this move severely limits your trading potential.
From the start, you will be opting to close a successfully running trade prematurely. It is not uncommon for markets to reverse. Then again, what if the current situation that benefits your trade holds out?
If you opted for partial profits, you would get your money back with interest. However, in an ideal situation, this value will definitely be lower as opposed to waiting out the trade.
If you are sure the market is heading in the right direction, then taking a partial cut should be a non-issue. At this point, you should consider increasing your position in the market.
Finally, prematurely profiting from a trade bears some upsides as well as shortcomings. On the one hand, it is a foolproof way to benefit from your trade, however early it may be. Also, other fundamental factors come into play and necessitate partial profits. News releases, for example, are notorious for having a significant impact on global markets.
However, to really get the gist of how much money you can make, you will have to allow your trade to reach completion. Taking partial profits involves closing a part of your position prematurely, and you will not realize your trade’s full potential.
So is taking partial profits advisable? If you are a beginner, partial profits are necessary, especially if you are unsure if what the future holds. Seasoned traders operate sans partial profits. However, these trading gurus have been in the industry for long and, throughout that time, have gained valuable experience in predicting market trends and outcomes.