Forex Profits, Maximizing By Scaling Out Lots
In this lesson we will discuss how traders can take profits on any forex trade. We will discuss various techniques how to take profits from your forex trades after the trade entry goes into profitability and positive pips. If you are in a profitable forex trade moving stop orders and scaling out lots will increase your account balance while retaining you upside potential. We will also review methods for evaluating a trade and whether or not you should stay in the trade longer term or exit all lots. How to handle forex profits is part of the overall money management discussion. Managing profit is possibly of somewhat equal importance as the entry itself, once you have a profit you need to maximize it. Forex traders discuss risk management much more than reward management, so let's open the discussion.
Are Profits Possible On Your Forex Trades?
Yes, we believe forex profits are possible. Forex traders need an effective trading system to enter trades, then take some profits, and hold onto some lots to ride the trends farther. This method of capturing some profits, then riding the trends should be reviewed by experienced forex traders who have an effective trading system and who have successfully demo traded. Beginner forex traders can practice these same profit taking techniques with demo trades and micro lot trades.
The Forexearlywarning trading system should get you into profitability on your trade entries, we believe we have the best way to trade the forex profitably. Then each trader can begin to employ the profit taking techniques we outline in this article. The Forexearlywarning trading system is a trend based system, we focus on the higher time frames, we prepare trend based trading plans daily, we enter trades using The Forex Heatmap® forex heatmap, we know the support and resistance levels and can set higher price targets, and we monitor the world economic calendar. A trading system like this will get you into profitability because it is a complete trading system, not just a few indicators on your charts.
Basic Rule of Thumb for Taking Forex Profits
Let's start with a basic discussion and some simple rules for taking forex profits. If a trader enters any forex trade, then the trade goes into positive pips to around +30 to +50 pips, they can start to employ profit taking techniques, including the rule of thumb. If a trader is in a trade that has moved strong in their favor, the basic rule of thumb is to close out half of your lots, then adjust your stop order on the remaining lots to break even. Then let the remaining open position ride the trend further.
Examples Of Locking In Forex Profits
Now that we know the basic rule of thumb lets learn how to take profits from your forex trades with various examples, including moving stops to break even.
In the first example a trader buys or sells an even number of lots. For example the trader sells 4 micro lots of the AUD/JPY. Using the rule of thumb the trader would scale out two lots at +30 to +50 lots of profit. Then move the stop to break even on the remaining two lots. By scaling out two lots and holding two lots, the trader has taken a profit but still has some upside and is running a break even stop on the remaining profitable lot. This works for an even number of lots like 2, 4, 6, 8 10 lots, etc, any even number. So using the rule of thumb in this case is a great way to manage forex profits.
In the second example a traders buys or sells an odd number of lots. For example the trader sells 3 micro lots of the GBP/CHF. Using the rule of thumb the trader would scale out one lot at +30 to +50 lots of profit. Then move the stop to break even on the remaining two lots. Then when the pair reaches +60 to +70 pips, the trader can scale out one more lot. By scaling out two lots and holding one remaining lot, the trader has locked in a profit but still has some upside and is running a break even stop on the remaining profitable lot. This works for an odd number of lots like 3, 6, 9, 12 lots, etc, or any multiple of 3. So once again, using the rule of thumb in this case is a great way to manage forex profits while retaining some upside potential.
These two examples of taking forex profits can be extended to more lots. If you normally trade 5 mini lots, for example, you can scale out 1 or 2 lots at various profit levels and still leave some lots running.
There are several benefits to taking profits by scaling out lots. First of all your account balance and equity increase, which increases available margin. It also builds confidence in newer traders. After you scale out lots and move your stop to break even, your trading day is over, you can take a mental break, and you can still have some upside with your open lots. Practicing scaling out lots works with demo trading, micro lots and mini lots, you are practicing for full scale trading using the same procedures, and it works for any pair.
Taking Forex Profits, Other Considerations
In this section of the article we will list various other considerations when taking forex profits:
One consideration is the volatility of the pair you are trading, with a more volatile pair you may choose to scale out lots at higher profit levels than the amounts we suggest in the rule of thumb.
One other consideration is the strength and quality of the trend. If you are riding a trend on the higher time frames like the W1 and MN time frames, you can scale out some lots and possibly let some lots run for the long term, possibly several weeks. If you are swing trading on the H4 time frame you can use the rule of thumb then scale out the last lots on that time frame. If you buy the EUR/JPY, for example, and all of JPY pairs are trending upward on the D1 time frame, then it is best to hold onto your EUR/JPY trade.
One more consideration when taking forex profits is the strength and quality of the entry signals from The Forex Heatmap®. If you enter a trade using the heatmap with strong and consistent signals there is no nearby support or resistance nearby, even low volatility pairs can move very strong. Movement can be 125 pips on a low volatility pair and 300 pips on a high volatility pair in one trading session. So scaling outs later then we suggest in the rule of thumb is warranted. In the example heatmap signal below, some of the JPY pairs moved over 150 pips in one trading session.
If a trader sells a currency pair and it is approaching a strong support level, it is best to keep scaling out lots and eventually exit all lots completely as it hits the support. Similarly, if a trader buys a currency pair and it is approaching a strong resistance level, scale out more lots and exit in the same fashion. We have a great online course on forex support and resistance levels with many examples for you to examine.
If you drill down the charts on 28 pairs using multiple time frame analysis, and you determine that the market is choppy, you must approach forex profits differently. If you decide to trade in a choppy market or inside of some choppy pairs, you must trade less lots, use only strong signals on The Forex Heatmap®, and you must also scale out lots sooner and exit completely sooner. If you are trading profitably don't let a choppy market set you backwards. Learn to identify a choppy market or set of pairs with our trading system, and make the necessary adjustments to your trading and profit taking procedures. If the market is currently choppy, remember that much better quality trades are likely just a few days away when the market starts trending again.
Currency pairs tend to move in the main trading session, then consolidate and move sideways around 3 hours after the US stock market opens. This is also a good time of day to scale out lots on any trade. This way you are scaling out lots when the current movement cycles are done, as opposed to profit levels.
Traders sometimes complain about getting stopped out, then subsequently the pair continues in the direction the trend. Many times newer forex traders enter a trade successfully, then they keep moving their stops into higher profitability, but keep getting stopped out. Then it happens again and again and they get frustrated. One possible solution is to not move your stops at all after the stop is at break even, this way your stop order is far away from the market. Using this technique, you do not move your stop past break even at all in the lifespan of the trade, but you just continue scaling out lots as the trade moves deeper into profitability. Doing it this way, if there are any short term volatility spikes, you will still be in the trade. In that regard we find it almost impossible to recommend trailing stops, as the techniques offered in this article are more effective.
This is a lot to take in for a new forex trader. But not to worry because handling forex profits can be practiced with demo trading and trading as little as two micro lots. Demo trading is a must, and practicing moving stops and scaling out lots is a must. Trading needs to be somewhat automatic. All traders using our system should set up a forex demo trading account and get some practice to get comfortable with the profit taking process. When you begin trading with real money, you can start with 2 or 3 micro lots and employ all of the profit taking methods you learned in this article and practiced with demo trades. Then you can be on your way to trading currencies for a living.
Using Mobile Devices To Manage Forex Profits
If you have a mobile device you you can practice taking forex profits on the go. If you are already in a trade but need to leave home, tablets and smart phones can be used for taking profits and resetting stops. If you have been in a trade several days, like a swing trade on the H4 time frame, and the trend is ending, you can completely exit the trade with a mobile device. If you are in a profitable position but away from home and want to scale out lots or take some profit using a mobile device, this is now becoming more common place. Checking prices and current profit levels can be done quickly on these devices. Subsequent exit decisions or scaling out lots can also be accomplished with mobile devices. Using a mobile phone or tablet can be great for quickly checking profitable positions and assisting with profit taking on trades you are managing.
Forex Profits, Automating Your Exits
There are ways for traders to introduce some automated features to their profitable trades. If you sell a particular pair and that pair is approaching a strong support level, a trader can place a price alert just above the support level to be notified on their desktop or phone. Then the trader can check the charts and indicators to see if they should exit the trade completely or scale out more lots. Price alerts can help with monitoring forex profits and help to automate the exits to a small degree. The other option for traders is to use any automated scale out programs built into your brokers trading platform, or to program partial scale outs using the Meta trader functions.
It is also possible to create a position and automatically scale out lots using a limit order, while complying with FIFO (first in, first out) requirements. Example: open two separate positions on the same pair for 2 mini lots, then set a limit order on the first position you opened at +50 pips, which is equivalent to scaling out lots. This will automate your exit to some extent, while leaving some lots open.
Taking Forex Profits On The Highest Time Frames
The Forexearlywarning system is trend based. Sometimes the market is choppy or oscillating, but when the market starts to trend you want to be prepared to take advantage of the trends. In theory you should be able to trade in a trending market and ride the trends higher or lower into more profitability. Lets look at one example.
You sell a pair that is trending down on the W1 and MN time frames and it has hundreds of pips of potential. You sell 5 mini lots, and at +75 pip you scale out 3 lots and move your stop to break even. This is now a new chapter in your trading journey because within a few days you might be at +200 or +300 pips of profit for the first time on the remaining two mini lots, eventually you might be +500 pips of profit. Watching this trade move up and down 100 pips on some days will really catch your attention, and you will be tempted to close out the trade. Our advice is to always leave at least one lot running on the largest time frame, so you can build more trust into a longer term trend. You are now testing your emotions and ability to control your trading when you are deep into a profit. The experience will be very rewarding, and profitable.