Partial Position Closure Strategy for Profit Realization

Fundamentals of Partial Position Closure in Trading

The Partial Position Closure Strategy (Scaling Out) is a professional method for managing trading positions in which a trader gradually realizes profit by closing parts of a trade at different price levels. This approach allows for optimal balancing between securing guaranteed profits and maintaining the potential for further revenue growth.

The principle of the strategy is based on dividing an initial position into several parts, each of which is closed upon reaching specific profit target levels. For example, a position of 1.0 lot can be divided into four parts of 0.25 lots, closing them at risk/reward ratios of 1:1, 1:2, 1:3, and 1:4 respectively.

Key Advantages of Partial Closure

• Reduction of psychological pressure and trading stress
• Guaranteed realization of partial profit at early stages of movement
• Ability to participate in larger trending movements
• Improvement of the overall risk/reward ratio of the portfolio
• Minimization of emotional factors influencing trading decisions

The psychological component of the strategy is that traders gain confidence by realizing part of their profits, allowing them to remain calmer about price fluctuations on the remaining part of the position. This is particularly important for novice traders, who often suffer from premature closures of profitable trades due to the fear of losing already secured profits.

Mathematical Calculations and Technical Aspects

Basic Formulas for Position Size Calculation

Determining the position size is critically important for effectively implementing the partial closure strategy. The basic calculation formula is:

Position Size = (Account Balance × Risk Percentage) / (Distance to Stop Loss × Point Value)

Practical Example of Calculation

• Account Balance: $10,000
• Allowed Risk: 2% ($200)
• Trading Pair: EUR/USD
• Distance to Stop Loss: 80 pips
• Point Value: $10

Position Size = $10,000 × 0.02 / (80 × $10) = $200 / $800 = 0.25 lots

Distribution Methods for Partial Closure

Equal Shares Method

The most common approach:

• 25% of the position is closed at RR 1:1
• 25% of the position is closed at RR 1:2
• 25% of the position is closed at RR 1:3
• 25% of the position is closed at RR 1:4

Percentage Method with Decreasing Shares

• 50% of the position is closed at the first level
• 25% of the remaining (12.5% of the original) at the second level
• 25% of the remaining (6.25% of the original) at the third level
• The remaining 31.25% is held until the final level

Adaptive Method

This method involves adjusting sizes based on market conditions:

• In strong trends: 20%-30%-25%-25%
• In uncertain conditions: 40%-30%-20%-10%
• In high volatility: 50%-25%-15%-10%

Calculating the Effective Risk/Reward Ratio

When using partial closure, the final RR is calculated using the formula:

Effective RR = Σ(Share Size × Achieved RR per Share) / Total Risk

Calculation Example for the Equal Shares Method

• Share 1 (25%): 0.25 × 1 = 0.25
• Share 2 (25%): 0.25 × 2 = 0.50
• Share 3 (25%): 0.25 × 3 = 0.75
• Share 4 (25%): 0.25 × 4 = 1.00

Final effective RR = 2.50 when all targets are completely achieved

Execution in MetaTrader Trading Platforms

In MT4/MT5, partial closure is performed by modifying the existing order. The step-by-step algorithm for the desktop version is as follows:

1. Double click on the open position in the "Terminal" window (this saves time compared to the context menu)
2. In the pop-up window, enter the size of the portion to be closed in the "Volume" field
3. Click the "Close" button to execute the partial closure
4. Confirm the operation

For MT4/MT5 Mobile Applications

1. Go to the "Trades" tab
2. Tap and hold on the desired position
3. Select "Close Order"
4. Specify the number of lots to close
5. Confirm the operation

Automation Through Multiple Take Profits

Modern brokers offer the ability to set multiple Take Profit orders simultaneously:

• First TP: 25% of the position at +50 pips
• Second TP: 25% of the position at +100 pips
• Third TP: 25% of the position at +150 pips
• Fourth TP: remaining 25% at +200 pips

Advantages of Automation

• Elimination of emotional decisions
• Precise execution according to plan
• Ability to trade without constant monitoring
• Protection against technical connectivity failures

Specialized Advisors

Expert Advisors for Partial Closure offer advanced functionalities:

• Closure on Retracements — securing part of the position during temporary corrections in a favorable direction
• Dynamic Management — adjusting levels based on volatility
• Integration with Trailing Stops — activating protective mechanisms after partial closure
• Statistical Analysis — tracking the effectiveness of various approaches

Strategies for Application in Different Market Conditions

Trending Markets

In conditions of strong trends, it is recommended to adopt a conservative approach to partial profit realization:

"Letting Profits Run" Strategy

• 10% of the position at RR 1:1 (minimal realization)
• 20% of the position at RR 1:2
• 30% of the position at RR 1:4
• 40% of the position held until the natural conclusion of the trend with a trailing stop

Signs of a Strong Trend for Application

• Consistent updates of extremes
• High volumes in the direction of movement
• Absence of significant corrections (less than 30-40% of the movement)
• Breakthrough of key resistance/support levels

Sideways and Uncertain Markets

In conditions of range-bound markets, a more aggressive profit realization strategy is applied:

"Quick Realization" Strategy

• 40% of the position at RR 1:0.5
• 35% of the position at RR 1:1
• 20% of the position at RR 1:1.5
• 5% of the position at RR 1:2 (if achieved)

Characteristics of a Sideways Market

• Price moves between clearly defined levels
• Frequent false breakouts
• Low trading volumes
• Lack of a pronounced direction of movement

High Volatility Periods

During heightened volatility, the strategy requires special adaptation:

"Quick Adaptation" Strategy

• Reduction of intervals between closure levels
• Increased percentage closure at initial levels
• Use of stricter stop-losses
• Rapid adjustment of plans with changing conditions

Example for the Cryptocurrency Market

• 50% of the position at RR 1:0.5 (protection against sharp reversals)
• 30% of the position at RR 1:1
• 15% of the position at RR 1:2
• 5% of the position with a trailing stop to capture larger movements

Psychological Aspects and Emotion Management

Overcoming the Fear of Missing Out Syndrome

FOMO (Fear of Missing Out) is a primary psychological problem with partial closures. Traders often regret early realization, observing further price rises.

Methods to Combat FOMO

1. Maintaining Detailed Statistics

• Record all trades with partial closures
• Compare results with full-position retention
• Analyze the long-term effectiveness of the strategy

2. Focus on Process Over Results

• Assess the correctness of plan execution rather than missed profit
• Remember that it is impossible to capture every movement fully
• Concentrate on risk management

3. Pre-defined Plan

• All realization levels should be calculated before entering the trade
• Use automatic orders to eliminate emotion
• Keep a trading journal justifying each decision

Discipline in Executing the Strategy

Key Violations of Discipline

1. Changing the Plan During the Trade

• Reason: Emotional reaction to price movement
• Solution: Automation via orders, clear rules

2. Premature Complete Closure

• Reason: Fear of losing already realized profit
• Solution: Understanding the mathematical advantages of partial closure

3. Refusal to Partially Close in Hopes of Greater Profits

• Reason: Greed, overestimating predictive abilities
• Solution: Studying personal trading statistics, understanding the importance of risk management

Emotional Benefits of the Strategy

Reduction of Trading Stress

• Partial closure creates a "safety cushion"
• Fear of losing all profits decreases
• Overall comfort during trading increases

Improvement in Decision Making

• Fewer impulsive actions
• More rational approach to managing positions
• Minimization of emotional influences on trading results

Practical Examples and Performance Analysis

Performance Analysis and Parameter Optimization

Key Metrics for Assessment

Key performance indicators for partial closure:

1. Effective Risk/Reward Ratio

• Average risk/reward ratio considering partial closures
• Comparison with results without partial closure

2. Win Rate (Percentage of Profitable Trades)

• Often increases due to guaranteed partial profit realization
• Important to track changes in this metric

3. Average Profit Per Trade

• Accounting for all partial closures as a single trade
• Comparison with alternative exit strategies

4. Maximum Drawdown

• Impact of partial closure on the size of maximum losses
• Stability of trading capital

5. Sharpe Ratio

• Return relative to the volatility of results
• Effectiveness indicator considering risks

Optimization Methods

Backtesting Different Approaches

1. Testing Percentage Ratios

• Comparison of 25%-25%-25%-25% vs. 40%-30%-20%-10%
• Analysis of results on historical data over a minimum of 2 years

2. Optimizing Intervals Between Levels

• Testing fixed intervals (50-100-150-200 pips)
• Adaptive intervals based on volatility (ATR)

3. Walk-Forward Analysis

• Testing parameter stability over rolling periods
• Identifying periods of strategy degradation

Example of Optimization Results

• Without Partial Closure: Win Rate 55%, Average RR 1:1.8, Profit Factor 1.45
• With Partial Closure (25-25-25-25): Win Rate 68%, Average RR 1:1.4, Profit Factor 1.82
• Adaptive Closure: Win Rate 72%, Average RR 1:1.6, Profit Factor 2.15

Practical Examples and Case Studies

Example 1: Trading EUR/USD in a Trending Market

Initial Conditions

• Deposit: $50,000
• Risk per Trade: 1.5% ($750)
• Currency Pair: EUR/USD
• Entry Point: 1.0850 (long position)
• Stop Loss: 1.0800 (50 pips)
• Position Size: 1.5 lots

Partial Closure Plan

• 25% (0.375 lots) at 1.0900 (+50 pips, RR 1:1)
• 25% (0.375 lots) at 1.0950 (+100 pips, RR 1:2)
• 25% (0.375 lots) at 1.1000 (+150 pips, RR 1:3)
• 25% (0.375 lots) at 1.1050 (+200 pips, RR 1:4)

Actual Development

• Price reached 1.0900 → closed 0.375 lots with a profit of $187.50
• Price reached 1.0950 → closed 0.375 lots with a profit of $375.00
• Price reached 1.0995, then reversed → stop moved to break-even
• The remaining 0.75 lots closed at break-even

Final Result

• Total Profit: $562.50
• Effective RR: 0.75 (instead of a potential loss if fully retained)
• Psychological comfort from realized profits

Example 2: Trading in High Volatility Conditions

Initial Conditions

• Asset: Bitcoin/USDT
• Deposit: $20,000
• Risk per Trade: 2% ($400)
• Entry Point: $45,000
• Stop Loss: $43,500 (-3.33%)
• Position Size: 0.27 BTC

Adaptive Strategy for the Crypto Market

• 40% at +2% ($46,350) — quick protection against reversals
• 30% at +4% ($46,800) — primary realization
• 20% at +7% ($48,150) — participation in continuation
• 10% with a trailing stop of 5% — capturing larger movements

Actual Development

• Price reached $46,350 → closed 0.108 BTC with a profit of $146
• Price reached $46,800 → closed 0.081 BTC with a profit of $146
• Price reached $48,150 → closed 0.054 BTC with a profit of $170
• The remaining 0.027 BTC with a trailing stop reached $51,000, closed at a pullback to $48,450 with a profit of $93

Final Result

• Total Profit: $555 (138% of risk)
• Effective RR: 1.38
• Maximum profit captured on 85% of movement

Common Mistakes and How to Avoid Them

Beginner Mistakes with Partial Closure

1. Lack of a Clear Plan

• Mistake: Making closure decisions in the trading process under emotional influence
• Solution: Thoroughly working out levels and sizes before entering a trade

2. Incorrect Calculation of Size Portions

• Mistake: Closing portions that are too large at initial levels
• Solution: Using proven ratios and mathematical calculations

3. Ignoring Market Conditions

• Mistake: Applying one approach in all situations
• Solution: Adapting the strategy to the market type (trend/range/volatility)

4. Discipline Violation in Successful Trades

• Mistake: Refusing to partially close in hopes of greater profits
• Solution: Strictly following the plan, understanding long-term benefits

Technical Mistakes

1. Not Considering Broker Commissions

• Frequent partial closures can significantly reduce profits
• Solution: Choosing brokers with low commissions, optimizing the number of operations

2. Execution Issues During Low Liquidity Periods

• Slippage when closing small volumes
• Solution: Trading during liquid hours, using limit orders

3. Platform Technical Failures

• Inability to execute the plan due to terminal issues
• Solution: Duplicating orders, using mobile applications as backup

Integration with Other Trading Strategies

Combining with Trailing Stops

An effective integration scheme is as follows:

1. Initial partial closure at RR 1:1 (25% of the position)
2. Moving stop-loss to break-even for the remaining 75%
3. Activating the trailing stop with a distance of 30-50% from ATR
4. Additional partial closures at strong resistance/support levels

Trailing Stop Settings

• Conservative: distance of 2-3 ATR, activation after RR 1:1.5
• Aggressive: distance of 1-1.5 ATR, activation immediately after the first realization
• Adaptive: adjusting distance based on current volatility

Application with Trend Following Systems

Within trend strategies, partial closure acts as insurance:

• Main position follows the trend with a trailing stop
• Partial closures ensure minimum profitability during false signals
• Combined approach yields better results than each strategy individually

The partial position closure strategy presents a powerful tool for professional trading that, when applied correctly, significantly enhances trading results. Keys to success include clear planning, disciplined execution, continuous parameter optimization, and understanding the psychological aspects of trading decisions.