The Art of Taking Partial Profits

Pursuant to my last post below on exit strategies, I stumbled on this YouTube video which I thought was rather insightful.

For some reason, very few people discuss the finer details of exit strategies, e.g. setting multiple take-profit targets, taking partial profits, moving stop-losses to breakeven, letting trades run etc.

Most people seem to only focus on ideal trade entry conditions.

Hence, I found this video really insightful because he actually shows some calculations on the different partial take-profit scenarios, such as what happens if your first take-profit is 50%/60%/70%/80%/90% of your position, and what the eventual overall net profit from those different trades will be.

Very useful to know.

But ultimately I’m just glad to see that there is at least someone on YouTube who is highly interested in going much deeper into the finer mechanics of trade exit strategies, because I myself had also been spending the past few weeks thinking hard about this subject.

Of course, in an exercise like this there will always have to be certain assumptions that you are maintaining a fixed win-rate (say 40%) and risk-reward ratio (say 1:3).

Personally, at this point in time, I’m beginning to lean more towards the following trade management rules for my own style of trading:

Take-Profit 1: Take 50% profits at 1.0x risk, and move stop-loss to breakeven.

Take-Profit 2: Take the remaining 50% profits at 2.0x risk.

Assume my position size (or risk) is $100, and assume no commissions in this case:

If price moves to my first TP target (i.e. 1.0x risk), then my minimum profit for this trade would be $50.

That means that even in the worst possible scenario thereafter, I will not make any less than $50 on the trade since it has already been cashed out (and because I had also moved my stop-loss to breakeven at the first TP target).

If price moves to my second TP target (i.e. 2.0x risk), then I would have made my maximum possible profit for this trade, which is $150 in total (i.e. $50 at first TP, $100 at second TP).

And yeah, these numbers feel quite right for me.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s