Partial profit taking: the arithmetic behind the habit

[Amanhasnoname]

Taking half the position off at a nearby target and letting the rest run seems to combine safety and potential. The math is more nuanced.

Suppose the first half exits at 2 pips and the second half at the original target of 4 or at a breakeven stop. The average result per unit depends on the probability of reaching each level. If the chance of reaching 4 pips after reaching 2 is high, the partial exit sacrifices expected profit. If the chance is low, it improves the outcome.

Costs complicate matters. Two exits mean two spreads on exits and perhaps double commission.

The right question is whether the combined rule has higher expectancy per unit of risk than the single exit. Testing requires tick data and realistic costs.

The benefit often turns out to be psychological: smoother equity curves and less regret, rather than higher expected profit. That can still be valuable if it helps keep discipline, but it should be recognized as such.

Quantify the trade-off, and decide with open eyes.

How do the results compare between a single exit and a partial exit approach in the testing?