As these market analysis scenarios are for educational purposes, a previous possible setup will be reviewed.
On 08.04.02019 a scenario in the EUR/USD currency pair was discussed where upward momentum were building with a possible new uptrend in progress. On the 8th of April the critical resistance level at 1.12547 was broken and a long position could have ensued with possible targets envisioned as well as a possible capital protection level. It is critical to know all these levels BEFORE any position is taken as no one knows what the market will really do. On the 9th of April the first target at 1.12853 was touched and partial profit could have been taken. This would mean that the original risk well as potential mental strain were drastically reduced.
On the 10th of April news cause the market to whipsaw but since the capital protection level was not moved, the trade was unaffected and would still be open. Currently it seems like demand is overwhelming supply again so the price might be on its way to the second target where more profits can be taken.
The fact that profit is taken in stages means that the probability that the earlier targets will be reached are high and the overall risk thus reduced. This means less mental strain that makes the rest of the trade almost effortless to manage. It is a very valuable advantage. Since we know that the market moves in trends, it is critical to leave part of a position open for possible larger profits from longer running trends while at the same time managing risk effectively. Partial profits are one way to achieve this precarious balance.
On 08.04.02019 a scenario in the EUR/USD currency pair was discussed where upward momentum were building with a possible new uptrend in progress. On the 8th of April the critical resistance level at 1.12547 was broken and a long position could have ensued with possible targets envisioned as well as a possible capital protection level. It is critical to know all these levels BEFORE any position is taken as no one knows what the market will really do. On the 9th of April the first target at 1.12853 was touched and partial profit could have been taken. This would mean that the original risk well as potential mental strain were drastically reduced.
On the 10th of April news cause the market to whipsaw but since the capital protection level was not moved, the trade was unaffected and would still be open. Currently it seems like demand is overwhelming supply again so the price might be on its way to the second target where more profits can be taken.
The fact that profit is taken in stages means that the probability that the earlier targets will be reached are high and the overall risk thus reduced. This means less mental strain that makes the rest of the trade almost effortless to manage. It is a very valuable advantage. Since we know that the market moves in trends, it is critical to leave part of a position open for possible larger profits from longer running trends while at the same time managing risk effectively. Partial profits are one way to achieve this precarious balance.