Since the day you have started trading in the Indian stock market, you would have made profits and even losses and the biggest loss you have made in trading would be the day when you traded without stop loss or if placed SL and removed it completely thinking the stock price would go up continuously and exit at the breakeven point so that at least you will be in no loss and no profit stage but instead of breakeven you will end up breaking the trading account.
Stop loss is one among the most regularly discussed concept in trading and there are a lot of misunderstandings about stop loss orders. To explain it in simple terms, Stop-Loss is nothing but a price which you have kept it as your risk appetite so that when the stock price reaches your stop loss specified target you will have to exit and square off the position so that when you make a minimal loss you have more funds invest into few trading sessions.
- Not Placing Stop Loss
It would a very silly mistake if you don’t set your stop loss. Few times traders are fortunate enough that without setting stop loss they make profit which is good but what if the same stock price goes completely done then the capital money of the trader is also into loss hence the placing of stop loss is mandatory in order to mitigate risk and capital.
- Widening or expanding loss
“People often blame the stock market, tell their calculations, analysis and study is right even though the price of the stock went down.”
Placing your stop loss is mandatory in order to avoid the above situation and when the market is completely down at least wait for the market to be corrected so that you can trade.
When placing the stop loss, do not have a watch over the stock and leave it for 45-60mins and post that check the value of the stock in the market either it will be above your stop loss or below your stop loss but here you will save your capital.
- Placing stop loss to early
Though with this method you can save yourself from a small loss but you will miss an opportunity to make a big profit if price goes in your direction. Why traders move their SL to breakeven? because of fear, they want risk free trade, If you want to be defensive and want risk free trade then place SL at breakeven only once price moved at least 1% away from your entry price, once it moved 2% book half the position and trail your SL at 1.5% This is most commonly followed by many traders who trade in multiple lots but I am not a believer in this, I go all for once and exit at once, means I neither scale in nor scale out, I see Risk-Reward in my every trade.
Pro Tip: I look for 1:2 RR, if I see some resistance than I even book profit at 1:1.5.
- Stop loss based on ATR
ATR stands for Average true range which means very volatile in the market and it gives the basic average of the stock price trading in the market ATR will tell you the average range of the price on the timeframe you are trading, ATR is different on the different time frame, If you are trading bank Nifty on 5 min time frame then ATR could be 50 and if you are trading on 1-hour time frame then ATR could be 130 or 180. ATR displays the range or volatility at that real moment which helps traders to place their stop loss.
EXAMPLE: – if I am trading Bank Nifty futures on 15 min time frame and ATR is 100 then my stop loss is 100 points plus 20 points buffer, total 120 points.
If I am trading Bank Nifty ATM options then my Stop Loss is half of ATR, in this case, 50 plus 20 points buffer, total 70 points.
This method helped me many times in saving my Stop loss
Follow this type of methods to make profits or at least save your capital to build the empire again
But remember V KAN BUILD it together.