In this article we will cover the strategies and tools needed to scale out of trades successfully in MT4. We’ll show you how to use good risk to reward principles and explain how to use the partial close option in the MT4 trade window.
What Is Scaling Out?
Scaling out is a risk management strategy used to minimise risk by partially closing a trade and taking some profit. It also has the effect of reducing overall returns.
How To Partial Close Trades In MT4
Closing part of a trade in MT4 is a simple process that can be done in four steps:
1. For the open trade you wish to close, double click the trade in the trade window (under the price column) or right click and select Modify or Delete Order.
2. The trade management window will appear. Make sure the Market Type is set to Market Execution.
3. Change the Volume amount to the number of lots you want to partial close.
4. Click the Close by Market button.
- This method can be done on any open position whether it is in profit or loss.
- The number of lots you choose in the Volume box is the amount you are closing, not what will be left.
Scaling Out Needs A Strategy
As you can see the process of scaling out via partial close of a trade is simple in itself. But what is not straightforward is the strategy of scaling out.
Scaling out has both advantages and disadvantages. It reduces risk but also reduces your potential return.
The Effects Of Scaling Out
The first advantage of scaling out that many people talk about is psychological. It is always positive psychologically to take some profit of course. However, if done poorly this can be disastrous for your long term results due to the affect on your average achieved risk to reward.
Reduced Return Example
If you open a trade with 12 lots and set your stop at a level that risks $150. Your target is a healthy 1:3 return of $450 which is a decent risk to reward.
The trade moves into profit and you decide to scale out at 1:1 by closing ⅔ of your trade. You close 8 lots and book $100 in profit. What does your risk to reward look like now?
Well, if the trade retraces back to the stop then, due to scaling out, you will lose $50 (⅓ of your original risk). Your overall trade profit is then $50. It might seem like a good thing to have booked a profit.
What did we risk for that profit? In reality by scaling out we risked $150 at the time of opening the trade and realised $50. This is a risk to reward of 1:0.33 which is awful. It means you get back $0.33 for every $1 you risk. Even if you set the stop to breakeven your R:R was only 1:0.66.
Reduced Risk While Maintaining R:R
A better way to use scaling is not to think of it as a way to take profits off the table but a way to make extra profit by letting a part of the trade run to a higher R:R target.
This is the best strategy for scaling because if implemented correctly will allow you to take profit whilst maintaining a realised R:R ratio which is greater than 1:1 and give the opportunity to let the trade run for a bigger potential reward.
NOTE: Targeted R:R vs Achieved R:R
There is a huge difference between targeted and achieved R:R. The targeted R:R is what you are hoping to achieve in any given trade.
However, a trader’s only measure of success is the P&L and the only thing that really matters is the achieved R:R. The higher your achieved R:R is the better your result will be over time.
How To Implement A Scaling Out Strategy In MT4
Scaling out properly required trade management and planning. This means that you are actively looking for entries based on their potential R:R.
Lets run through an example of scaling out using MT4 so you can see how to do it in practice and still maintain a positive R:R ratio.
Note: There are two ways to approach this:
- The first way is to open a single trade of multiple lots and use the partial close function to scale out.
- Open multiple trades at the same time and exit the trades individually to scale out.
In this example we will use the first method as it uses the partial closer function we want to demonstrate. However, the second method had some distinct advantages which we will talk about at the end of this example.
Custom MT4 Indicators Used
In this example we will make use of two custom plugins for MT4, our Risk to Reward indicator and Trade Manager EA. Everything in this example can be worked out manually or completed without these tools.
Identify A Trade With Good R:R potential
In this example we are looking to buy the DJI30. The market recently hit an all time high and then sold off. The sell off started to slow near an area of horizontal and trendline support.
Our trading plan is to buy on the support and trade potential move back to the previous high. We will look to open a large buy order with the intent of scaling out part of the order on an initial retracement and then let the rest trade run for a higher potential reward at the high.
We open a buy order for 12 lots. We set a tight stop just below support and a target back at the all time high level.
On the 5 minute chart below we have drawn out the risk to reward potential of this trade based on our entry and stops.
As with any trade, the higher the potential risk to reward the less likely it is for a trade to work out. From both the 5 minute and 1hr charts we identify a high likelihood of the 1:3 R:R level being hit.
Trade Targets (Trade Plan)
Our target is going to be to achieve the 1:3 risk to reward level. At that point we will scale out of ⅔ of our trade. We will then set our stop to breakeven and let the remaining ⅓ of the trade run to the 1:10 target level.
If successful in hitting the first target, this will give us the following achieved R:R:
Our risk in this trade was $320. At the 1:3 level, closing ⅔ of our trade will book a profit of $639. We then move our stop to break even. At this point our achieved R:R for the trade is 1:2 even if the market reverses and stops us out, which is a great result.
However, if the market continues to move up to the target of 1:10 we could make an additional profit of $1066 (⅓ of $320 x 10). This would then be a combined profit of $1705 for an achieved R:R of greater than 1:5 which is even better.
- Scale two thirds of trade out at 1:3
- Set breakeven
- This will give a realised R:R of 1:2
- If stretch goal hit will realise R:R of 1:5
Setting An Alert (optional)
Now we have a live trade and a trade plan, we need to wait for the market to move to our target. It would be a good idea to set an alert close to the 1:3 level so that we are ready to partial close when it gets there.
To set an alert, click the alert tab at the bottom of the MT4 window. Right click to create an alert and the option box will appear. Select the correct market and put the alert level close to your target and click OK.
You will see a dashed arrow on the right of the chart at your alert level.
There are many way to use Alerts and notifications to help your trading and you can find a full article dedicated to the alert and notification features of MT4 here: Mt4 Alerts And Push Notifications Full Guide Desktop Mobile Email.
Implement The Partial Close and Break Even
We received the alert and the market moved to our target. We now complete the partial close using the method shown in this article.
We used the quickest method which is to double click the order in the trade window under where it says Price. This opens the trade modification window with Market Execution preselected.
Change the number volume to 8 lots and click close.
We have now successfully closed ⅔ of the original trade. Using our Trade Manager EA, we quickly move the stop to breakeven. We have now achieved our goal of an achieved R:R greater than 1 and we have a risk free trade on which can run for greater profits.
Alternate Scaling Out Method
As mentioned above there is an alternative way of scaling out which can make a lot more sense for many people. The alternative method is to open multiple trades at once and then close them individually to scale out.
In this example we could have opened 3 trades of 4 lots each instead of one single trade (or any division of lots you prefer even 12 trades of 1 lot).
We would then close 2 of the trades at the 1:3 R:R level and set the final open trade to break even. This would achieve the same result as the first method.
The big advantage of this method is that because you have divided your trades up, you can set different stops for each, meaning that can automatically scale out at the 1:3 level by have 2 of the trades with take profits at that level and the final trade with a take profit at the stretch target of 1:10.
Scaling Out EA’s
For those of you looking for an EA that will help you scale out automatically, the best free option we have found if Admiral Market’s trade terminal. You can access it via MetaTrader4 Supreme Edition click this link: Admiral Markets MT4.
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Disclaimer and Affiliate:
In this article we recommended some links to Admiral Markets which are affiliate links. This means we may receive a commission in some instances.
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