We feel that there is only one thing worse than not using a stop loss and that is setting the stop to close to the entry price. We really get frustrated when we set our stop the market moves against us, stops us out then moves in the direction we had originally planned.
There is an art to setting stops you need to be far enough away to let the market breath yet close enough that you do not lose too much. Setting a stop to close can be the result of fear of losing too much, not having a clue where to place the stop or just thinking you need to cut your losses.
Inexperienced traders place there stops where many other traders are placing stops for example near the low of a move. Their evaluation of the market can be correct but with a poor timing on the entry and setting the stop to close they are taken out. When the market starts to move in the original direction the trader gets back in close to the place they had entered in the first place.
Trades that could have been winning trades are missed because of stops that are placed to close. With a large number of small losses it lowers the total profit in the account so the winners are not as effective as they should be. More stops will be hit if they are placed in the trading range where many other traders are putting their stops.
A trader may be a good trader but he will never make any money if he places his trades to close. You can be good at picking the direction of the trade but by not giving the market enough room to move you will end up being a losing trader.
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Jed and Kirk Norwood