When I buy momentum stocks I usually set a tight stop order just below the first pull back. If the stop is further than 20 cents away, I may decide to stop out minus 20 cents and come back for a second try. The reason I use a 20 cent stop is because I always want to trade with a 2:1 profit loss ratio. In other words, if I risk 20 cents, it’s because I have the potential to make 40 cents.
If I risk 50 cents or more, it means I need to make 1.00 or more to get the proper profit loss ratio to justify the trade. I try to avoid trades where I have to generate a large profit to justify the trade. It’s much easier to achieve success if I have a 20 cent stop and 40 cent target vs a 1.00 stop and a 2.00 profit target.
When I’m trading I try to balance my risk across all trades. The best way to calculate risk is to look at the distance from my entry price to my stop. If I have a 20 cent stop and want to keep my max risk to $500 I’ll take 2500 shares (2500 x .20 = 500)