Elearnmarkets - Financial Market Learning
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
  • Courses
  • Webinars
  • Go To Site
  • Login
Elearnmarkets
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Webinars
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Technical Analysis

How to Place Stop Loss in Trading ?

Elearnmarkets by Elearnmarkets
October 14, 2022
in Technical Analysis
Reading Time: 7 mins read
9
25.8k
VIEWS
Share on FacebookShare on TwitterShare on WhatsApp

Stop loss in trading is a method that is used by traders to limit their losses.

For example, let’s say Abhay buys 50 shares of ITC Ltd. at the rate of Rs.167

Shortly, the share price falls to 165 rupees per share. Ashish wants to limit his losses; so he puts a stop-loss order at Rs.163.

If the price fell to Rs. 163, then his broker will sell the shares for preventing further losses.

On the other hand, if the share price jumps to Rs. 175 per share, then Abhay would want to hold on to his shares.

Thus by placing the stop-loss to his trade, Abhay protects his trade by preventing potential losses.

Table of Contents
What is Stop Loss?
Methods of Placing Stop Loss in Trading
Advantages of placing a stop-loss
Mistakes to avoid while Placing a Stop-Loss:

What is Stop Loss?

The Stop loss in trading is a very powerful tool that is available to the traders for limiting their losses.

It is an advance order that helps the traders to sell their shares if the share price reaches a specific price.

Thus, it helps in automating the selling process in different market scenarios.

Stop-loss can be used for both short-term as well as for the long-term, but it is most effective for day traders.

Also, brokers do not take extra charge for this type of order, thus making it more effective for the traders.

how to place stop loss

Methods to place Stop Loss in Trading:

One should generally place a stop loss in trading at the low of the most recent candlestick when they are buying the stock.

Similarly, one should place a stop loss in trading at the high of the most recent candlestick when they are selling the stock.

Learn from Market Experts

  • Trading for Living
  • Technical Trading Made Easy
  • The Key to Successful Trading

Here are some more ways of determining the stop loss levels:

1. Support levels:

Support levels are often used by the traders to determine the stop-loss levels.

In the weekly chart of State Bank of India we can place a stop loss in trading at the 235 support level, if this level is broken then our stop loss order will be executed at Rs. 235.

support levels

2. Percentage Method:

Another method of placing a stop loss in trading is through the percentage method.

For example if you can take a loss of 10% based on your risk appetite. Then you can place a stop loss price at 10% lower than the buying price.

3. Through technical indicators:

Traders often use technical indicators to determine stop loss levels.

For example, using the moving average you can place a stop loss just below the longer period moving average than a shorter period moving average.

In this daily chart of State Bank of India, we have places stop loss at the low of 20 MA which is the longer period in this setup.

technical indicators to place stop loss

4. Fibonacci Retracement levels:

Fibonacci Retracement levels can also be used to determine stop loss level.

Above are some of the ways of placing stop loss for your trades but a trader should put stop loss price based on his trading strategy.

Advantages of Placing Stop-Loss:

Let us discuss the advantages of placing a stop-loss:

1. Helps in Cutting our losses:

Stop loss in trading helps us to minimize our losses and also ensures us against a big loss.

Many a time, we suffer a big loss if we don’t place a stop order as the price falls steeply.

2. Provides Automation:

Stop loss in trading helps to automate our selling as we do not need to be present in front of our trading screens all the time.

A stop-loss automatically gets triggered if the stock touches a specific price.

3. Helps in maintaining ‘Risk and Reward’:

One should maintain risk and reward while trading.

For example, if you define that you’ll take only 2% or 5%, the risk for getting that much profit. Thus a stop loss helps you to maintain your ‘risk and reward’.

4. Helps in promoting discipline:

It’s important to detach ourselves from market emotions. Stop loss helps us to stick to your strategy and also promotes disciplined trading.

Mistakes to avoid when you Place Stop Loss:

Here are a few mistakes that the trader needs to avoid while placing a stop loss:

1. Not Determining your Stop Placement in Advance:

A trader should know where his stop is going to be before he takes the position. The benefit of ascertaining your stop loss before you open trade is that it removes any emotions from the decision.

2. Placing your Stop Based on Arbitrary Numbers:

One shouldn’t place their stop loss based on arbitrary numbers. They should determine their stop loss based on technical parameters as discussed above.

Key Takeaways:

  • Stop-loss is a method that is used by traders to limit their losses.
  • Figuring out where to place stop loss mainly depends on your risk appetite—the price should limit your loss.
  • The percentage method is used to limit the stop-loss at a specific percentage.
  • The support method is used by the trader to determine the most recent support level of the stock and places the stop-loss just below that level.
  • In the moving average method, a trader can place a stop-loss just below a longer-term moving average price.

Will you be now able to place a stop loss to your trades? Tell us by commenting below:

Happy Learning!

Tags: englishintermediatemethods to apply stop lossstop losstechnical analysis
ShareTweetSend
Subscribe To Updates On Telegram Subscribe To Updates On Telegram Subscribe To Updates On Telegram
Previous Post

Term Plan with or Without Maturity Benefits – What’s the Difference?

Next Post

5 Reasons to avoid Fundamentals for Day Trading

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

Technical Analysis

Ultimate Guide to Certified Market Technician (CMT) Level-1

December 27, 2022
4.3k
Technical Analysis

5 Best Intraday Trading Strategies

November 3, 2022
32.7k
Technical Analysis

3 Trading Strategies using Average Directional Index (ADX)

January 19, 2023
9.1k
Technical Analysis

Technical Analysis in Stock Trading

January 18, 2023
4.9k

Comments 9

  1. Poseidon Capital says:
    3 years ago

    In addition to the above-mentioned , the most effective method basis personal experience , Is the SL slightly Higher than the Recent Swing High ( in case of Short Positions ) and Slightly lower than the Recent Swing Low ( in case of Long Positions) for the respective time frame of initiation of a trade.

    Reply
  2. Arun Bagai says:
    2 years ago

    Very informative. 🙏👍

    Reply
    • Sakshi Agarwal says:
      2 years ago

      Hi,

      We are glad that you liked our post, you can read more blogs on Technical Analysis from here.

      Thank you for Reading!

      Reply
  3. udit thakker says:
    1 year ago

    Excellent information

    Reply
    • Sakshi Agarwal says:
      1 year ago

      Hi,

      We really appreciated that you liked our blog! Thank you for your feedback!

      Keep Reading!

      Reply
  4. Yogesh Santhanam says:
    1 year ago

    This blog is informative as it speaks about the importance of stop-loss, various types and the advantages of using it. In my opinion, a strict stop loss is a good defence for an Investor in this volatile stock market.

    Reply
    • Sakshi Agarwal says:
      1 year ago

      Hi,

      We really appreciated that you liked our blog! Thank you for your feedback!

      Keep Reading!

      Reply
  5. SACHIN CHAVAN says:
    1 year ago

    Respected Sir/Madam,
    Your short notes on specific topic is very helpful for all new beginner like me. Thank you.

    Reply
    • Sakshi Agarwal says:
      1 year ago

      Hi,

      We really appreciated that you liked our blog! Thank you for your feedback!

      Keep Reading!

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Follow Us

Facebook-f Twitter Instagram Linkedin-in Youtube Telegram

Download App

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Get Articles On Email

Enter your email address:

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Marketshala
  • Miscellaneous

© 2022 Elearnmarkets . All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Get Elearnmarkets App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars

© 2020 Elearnmarkets All Rights Reserved

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In