For putting stoploss order ,CMP(current market price) plays an important role.
After buying at 100/- an sell order like Target=105 & stoploss=98 is valid.
Say after time CMP moves to 104/-.Then order like Target=105 Stoploss=103
is valid.But in the begining we can not have a order like Target=105
Stoploss=103.(In that case both Target & Stoploss are on same side of CMP)
This guarantee you a profit of 103-100=3 ,even in worst case.
If my understanding of SL is wrong ,please correct me.
Columbus ,
I have different view from your.
What I understood from ICICIDIRECt and trade the same is
What is a Stop Loss order ?
A Stop loss order allows the client to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price specified by the investor in the form of 'Stop Loss Trigger Price'. When a stop loss trigger price (SLTP) is specified in a limit order, the order becomes one which is conditional on the market price of the stock crossing the specified SLTP. The order remains passive (i.e. not eligible for execution) till the condition is satisfied. Once the last traded price of the stock reaches or surpasses the SLTP, the order becomes activated (i.e. eligible for execution by being taken up in the matching process of the exchange) and then on behaves like a normal limit order. It is used as a tool to limit the maximum loss on a position.
Examples :
Stop Loss Buy Order
'A' short sells Reliance shares at Rs 325 in expectation that the price will fall. However, in the event the price rises above his buy price 'A' would like to limit his losses. 'A' may place a limit buy order specifying a Stop loss trigger price of Rs 345 and a limit price of Rs 350. The stop loss trigger price (SLTP) has to be between the last traded price and the buy limit price. Once the market price of Reliance breaches the SLTP i.e. Rs 345, the order gets converted to a limit buy order at Rs 350.
Stop Loss Sell Order
'A' buys Reliance at Rs 325 in expectation that the price will rise. However, in the event the price falls, 'A' would like to limit his his losses. 'A' may place a limit sell order specifying a Stop loss trigger price of Rs 305 and a limit price of Rs 300. The stop loss trigger price has to be between the limit price and the last traded price at the time of placing the stop loss order. Once the last traded price touches or crosses Rs. 305, the order gets converted into a limit sell order at Rs. 300.
