Risk Management Through Partial Profit Taking

Last week in mentoring, we were taking about how to take partial profits. Learning to do this well takes a little practice, but that time can pay dividends when it comes to trades that are moving in your favor.

There are two techniques that I use for taking partial profits. The first is by using the 50% rule. Any trade that moves at least 50% from my entry to my target is at a good level at which I am willing to reduce my exposure and put some money in the bank.

Our goal as traders is to be good managers of risk. Through good risk management, the money will simply be a byproduct.

In the example below, I'm looking at a 60 minute chart of LXK. The first example is using the 50% level from the entry to the highest level of the MOB. In the second example, I am using an alternate technique which involves drawing an ellipse to help isolate an area where the price action could falter on the way to the MOB. Which ever method you prefer, it is critical to good trading to go risk free as soon as the market gives you an opportunity.

Ideally, we want to see this thing move to the MOB, but by strategically taking some profits off the table, we are able to reduce our exposure in case things don't work out as expected. When this type of behavior is practiced, we can still profit from trades that don't meet our target or officially "fail". Trade Smart

~Duane Gott