Introduction

As any experienced trader has seen in the reality of the market, knowing when and how to exit trades is arguably as important, if not more important, than knowing when to enter. We have invested a lot of time on Inner circle webinars discussing exit approaches not only in terms of management of potential capital risk i.e. the potential to lose on a trade, but equally as impactful on overall outcomes the approaches you can implement in reducing the amount of “giveback” when in a trade that goes in your desired direction i.e. profit risk.

One such approach is to use an incremental method, rather than closing an entire position at once, to lock in profit through the use of a partial close. This, in simple terms, allows a trader to close a portion of their trade, so banking some profit, while keeping the rest open.

As with any approach in your trading decision making, and in the quest for consistency in action so you can see what works and doesn’t in your trading system, this should be planned and of course executed with consistency, as through this, discipline you will be able to find the approaches that are a best fit for you and your trading style and objectives.

Unfortunately, although many may have dabbled with the concept of partial close, often this is not backed up with that required consistency, rather occurring as a ‘heat of the moment’ ad-hoc decision that may not serve you well for a lifetime of trading.

This article aims to help you develop this part of your trading plan exit strategy, defining what partial closes are, how to make them happen with consistency to enable informed system refinement, and the options you can explore for managing the remaining position.

What Is a Partial Close?

A partial close is a profit risk management approach where a trader exits only a portion of their position prior to a final ultimate profit target being hit. For example, if a trader enters a trade with 1.0 lots, should the trade moves in the desired direction, they might choose to close 0.5 lots once the trade reaches a predefined profit level, allowing the other 0.5 lots to continue running.

This technique is commonly used across all trading styles and timeframes and can also be actioned manually or coded within an automated trading system, e.g. with an EA.

Advantages of Using Partial Closes

1. Lock in Profits: By securing some profit early, traders can realise some of the gains in a position, both the psychological pressure of holding the full position, reducing overall market exposure, as well as locking in some “banked” profit into their trading account.
2. Reduce Risk: In practical terms, lowering exposure in a position (and so also the account market exposure) means that if the market reverses, the trader has less monetary risk. In addition to the percentage movement towards a take profit, partial closes can also be used to reduce risk in situations where market risk may be increased, such as prior to economic data release, while still preserving some upside potential if the data comes in favourably compared to what was expected.
3. Increase Flexibility: Partial closes can be combined with other exit strategies, including trailing stops or time-based exits, allowing a strategic approach to profit risk management.
4. Better Emotional Control: Traders may find it easier to stay disciplined with the remainder of the positions if they know part of their profits are already ”safe”.

Limitations and Challenges

1. Capped Upside Potential: Exiting a portion early can reduce overall returns if the trade continues strongly in your favour.
2. Complexity: Managing multiple exit points adds layers of decision-making, especially in discretionary trading. This reinforces the advantage of having written “when and how” guidelines for taking action as a formal part of your trading system.
3. Trader Knowledge Limitations: Of course, there will be specific ways in which to action partial close on your trading platform. This does require some knowledge on the part of the trader to make sure these are actioned as planned. Methods to do this will differ from one platform type to another, so no assumptions can be made that just because you have done this on a different type of platform that it will be obvious on another. Of course, this can be learned easily through practice on a demo account before implementation on a live account.

Key Components of a Partial Close Strategy

There are three components to any partial close strategy, namely, when to act, how much to close, and your approach to managing the remaining portion of the trade that is still in the market. Let’s consider each of these.

1. Timing: When to Perform your Partial Close

There are four common methods used:

• Target-Based: Close part of the trade at a specific reward-to-risk milestone, such as 1R (where R is the initial risk). In this case, it would not be uncommon to have multiple partial closures. e.g. at 1R, 2R etc.
• Technical Level: Exit a portion at known support/resistance or Pivot level to lock in profit at a potential pause or reversal point.
• Progress towards take profit: As referenced earlier, as one of the most common approaches, a preset take profit provides an opportunity to implement a partial close at a percentage move towards your take profit. E.g. you action this at 50% towards your take profit.
• Time-Based: Although less common, set time rules may be the action point. Often, closing part of the position after a certain number of candles or hours may be considered, or as previously referenced, a risk management approach when significant data release is imminent, e.g., CPI, jobs data

2. Sizing Adjustment: How Much to Close

There are three potential approaches to this.

• Fixed Size: A predetermined percentage (e.g., 50%) of the position when the specified price target is hit. This is probably the most common and easiest to implement
• Scaled Reduction: Slightly more involved is the approach to gradually close smaller chunks of your position, such as 25%, then another 25% at later levels. The practicalities of this are more difficult to implement, not only in working out what the multiple closes may be in terms of overall position, but also could be difficult to implement with some strategies where a relatively small move is the overall target. In other words, the larger the distance between entry and final expected reversal or pause point, the easier this will be to act on.
• Dynamic Approach: For advanced traders, the option of basing the size of the partial close on trade conditions like volatility or market structure could be considered. In practice, this may take a considerable amount of time and a critical mass of results data to action consistently and may require multiple refinements to achieve such and demonstrate better outcomes than other approaches. For this reason, this is not common.

3. Managing the Remainder of the Trade

Once a partial close has been executed, the remaining position still requires management.

Options for management include:

• Leave the Stop Loss Unchanged: Allow the remaining portion to play out as per the original plan, maintaining your original full stop-loss distance. The advantage of this is that you still give the market a chance to move rather than the remainder being taken out by “noise”. Those who advocate this method would suggest that it can potentially create a no-lose situation where your partial close has covered your stop, BUT this values your net worth in a position at the entry price, NOT the value after a move in your favour.
• Structure-Based Trail: Move the stop behind recent swing highs/lows, so on each retracement on a move in your direction, you continue to lock in some more profit with the remainder of the trade.
• Move to Breakeven or Beyond: To eliminate the risk of the remaining portion and to improve the potential outcome that the best your partial close does in that described in the first scenario would be to move the stop to the entry price or above (e.g., breakeven +1 ATR) once part of the trade is closed.

Combining With Other Exit Methods

Partial closures do not exist in isolation. They can work alongside other experts such as”

• Fixed Take Profits: Set targets for final exit.
• Time-Based Exits: Exit the remainder if the trade stagnates.
• Trail Stop methods: Exit on reversal candlestick patterns or other dynamic trailing stops e,g, Price vs Moving average

The key is to ensure all components, including those associated with your partial close, are part of a consistently executed and tested strategy.

Final Thoughts and Summary

Partial closes offer traders a way to blend some security with the opportunity of locking in gains while keeping the door open for a continued move in your desired direction.

They can be particularly effective in volatile environments where prices can swing rapidly between technical zones and in the management of pre-data release situations.

Without wanting to labour the point too much as with any trading method you use during the life of a single or multiple trades, the key is having a plan articulated that facilitates consistency, discipline in execution, and evidence-based decision-making following thorough testing of not only this approach but in comparing it against other “what-if” scenarios.

We trust that as a minimum, this has given you food for thought it not only whether partial closes could be a fit for your trading but also some guidance about how to action this if you choose to follow through on an evaluation of this exit approach.

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