Since I am a risk manager first, my objective is to take all the risk out of any trade I am in. Scaling out at an amount equal to the risk is an excellent way to be in a free trade scenario.
In the charts we have been covering, let’s walk through how an intermediate Forex trader can utilize this tip.
The risk with entering at level “2” is 51 pips so scaling out half of your position at 51 pips of profit gives you a free trade. Even if price retraces all the way to your original stop, breakeven is your worst case scenario. I usually add a few pips to cover spread cost the if I do get stopped out, it truly was a free trade.
This is great for those that can’t watch the market or run to adjust a stop at certain price points. Intermediate Forex traders usually have gained the ability to “set and forget” and let price do what it is going to do without micromanaging every pip.
Being wrong costs you nothing
Markets move in waves and we can never say with 100% certainty if we entered at the tail end of a corrective wave. This method takes that into account as you can see from the next chart.
In the case of this chart, you managed to take the risk out of the trade on the swing up and when finally stopped out with the red arrow, this trade cost you nothing. With a clean slate and no money on the line, you can reevaluate if there is another trading opportunity.