When you enter a trade you are taking a speculative risk. That risk is your entry minus your stop.
Let us say you entered a 100 dollar stock on a breakout of 5% where your entry was 105. You put a stop at 100 because violating that point indicates breakout failure. Then your risk is 5 dollar.
The closer is your stop to entry lower is your risk.
Breakout setups are inherently higher risk setup unless you get in to breakout quickly as they are happening and can move your stop to breakeven soon after entry.
If you want to lower your risk then you have to trade non breakout setups where you can enter with very close stop.
Anticipation setup that I have talked about a lot can help you do that. Similarly the low threshold breakout setup video I posted last night offers you similar opportunities. The $ breakout scan also allows you to do same thing as many higher priced stocks breakout with less magnitude moves.
Closer is your stop to your entry you will be in a position to put in more capital on a trade. That means you will need less number of trade to make money.
Closer stop also means stock need to make a small move for you to make money. So with 2% stop even a 6% move is 3 times your risk.
But always remember a close stop is no guarantee an unusual event will get you out at your stop. So to protect yourself against catastrophic loss you still need to limit your position size to some % of your equity.
Put your energy in to developing setups where entry-stop is low…..
Source:
http://stockbee.blogspot.com/2017/05/look-for-close-stops.html
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