Partial closure of positions: pros and cons

Many beginner traders close part of their positions too early to secure a profit. Imagine buying shares for 10,000 PLN, and the price rises by 10% (1,000 PLN profit). Closing half of the position at the first increase of 5% (500 PLN) limits potential gains. Another mistake is not anticipating transaction costs. Every operation related to closing part of a position incurs additional costs, such as brokerage commissions or spreads, which can be as high as 0.5% of the transaction value. The lack of a plan means that decisions about partially closing positions are often made based on emotions rather than strategy.

Partial position closing without a strategy leads to unpredictable results. When the market changes direction, you may find yourself in a situation where the remaining half of the position generates losses, and the profit previously obtained does not even cover the transaction costs. Emotions such as fear of losing profit or greed cause traders to close positions too early, missing out on potential larger gains. Without a solid plan, instead of minimizing risk, you may be increasing it.

Let's consider an example with a capital of 15,000 PLN. You invest in stocks and achieve a 10% increase, gaining 1,500 PLN. However, you decide to close 50% of the position at the first increase of 5% (750 PLN). If the market continues to rise, you lose additional potential profit. Moreover, additional transaction costs, e.g., 0.5% of the value of the closed position (37.50 PLN), reduce your profit. In the long run, such decisions can significantly reduce your total profit, especially when the market offers more opportunities for growth.

1. Develop a plan: Decide in advance at what profit level you will close part of your position.
2. Consider costs: Remember about commissions and spreads that affect the final profit.
3. Be flexible: Analyze the market continuously and adjust your plan, but avoid decisions made under the influence of emotions.
4. Set specific indicators: e.g., support and resistance levels that will be signals for you to act.
5. Use a trailing stop: This will allow you to secure profits while still giving the opportunity for further increases.

Daily analyze your trading decisions by writing down what you could have done better.