How to decide whether to sell a portion or your entire position

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Updated: 28 August 2020

It can be difficult for traders to decide whether they should sell their whole position or only a portion at a time. If you are struggling with this problem, there are several concepts to consider that will make the decision clearer. When pursuing any market, whether it’s forex or CFD trading, your primary goal is to earn profits. Day trading is no different and should be focused on turning as much profit as possible per trade. In order to achieve this, every position has to be closed at some point – preferably at the time it will generate the most returns. In other words, you need to sell your long positions and buy short positions.

The reality of trading is that no one, not even the professionals, can truly predict the movement of a stock. This inability to correctly determine profit potential often leads to mistakes that cost us profit. This can cause traders to question their methods and look for different ones.

Selling in portions

Once you realize that you could be making larger profits, you will likely decide to close roughly half of your position and wait to close the rest of it. This allows you to close with some profit and avoid risking your entire position. This concept might be effective in theory, but it is not always that simple or practical. Although this method does allow for some profits, it will not reap as much profit and will affect your position overall should the second half of the position not perform well. Even if you win on the first half, a hit on the second half will make any profits seem minimal. Leaving a profit to settle and run at risk is counter-productive in day trading. Any sudden volatility can cause a drop in your winning trade.

Another way of doing this is by closing your positions in thirds, selling when a run is favorable. The fact remains that there is no need to keep a stock open all day while day trading. A stock rarely follows one trend for the whole day.

The third way to sell in portions is known as selling “by touch.” This consists of selling a chosen portion depending on your analysis of the market. You could sell in smaller portions if the market looks promising or in larger portions during a volatile situation. Although this can work, it does not allow for much consistency in your trades.

Selling the whole position

Because these methods of partial selling cause complications and only reduce potential profits, some of the best trading tips for this situation will recommend selling the whole position at once. Whether your position is looking promising or risky, your safest bet is to sell it all. You should trust your analysis and close your position when the situation does not look good. Instead of worrying about the money you could have made, focus on the money you did make or didn’t lose. When you are a day trader, you do not have to commit to a stock for a whole day and can focus on the stock’s best potential for bringing profits. Closing the entire position also reduces the stress and risk of your money being put on the line unnecessarily.

Resist the urge to follow the crowd

Many traders will use the method of selling portions, but this does not mean you should do it, too. Your trades are unique to your style and conditions, and your strategies should be planned accordingly. This does not mean that selling in portions is a bad way to close your positions, but it is not the only way to do it. Selling the whole position is simply less complicated and a more powerful way to manage your trades without holding on to risky positions.