Stoploss Big Mystery-3 Golden Keys

[sanx]

Can any1 please take the pain to explain me how 2 place a stoploss order or a trailing stop in this following example:
XYZ@100, say it is buy signal then what should be the limit price and SLtrigger price if 85 is the immediate support and resistance is 130.
please dont worry abt risk reward here it is just to understand 4 me.
As in the above example I am trying 2 place 85 as SL but cudnt..

If the price goes in my favour say to 130 and how to lock the profit or trailing stop.??

Immediately after placed the buy order and if it gets triggered , place a stop loss order for 85 Rs /

When the price moves upto say 130 rs , modify the earlier stoploss order of 85 rs to say 120 rs . That way you be can sure to have made at least 20 rs profit .

 

[ash.paul]

Thank you for your reply, i understand the concept but you mean to say when i place a buy order for xyz i just buy with limit price of 100, ya??
after I have bought it then how will i place a stoploss?? ru telling me to place a sell order or square off the postion??
the what should be the limit price and stoploss trigger price in this example.
please be specific so that i can understand the concept..
thanks a million in advance.

 

[sanx]

Thursday, March 20, 2008
Secrets Of Stop Loss Order In Stock Market

Stop loss order is an order to close position if/when losses reaches a particular point. In other words this is an order by which you can decide the maximum loss that you are ready to accept. Here we are going to discuss only Stop Loss Order regarding Day Trading, but the same principle can be used for Swing Trading or Long Term Trading.

Following Example can explain the point.

If u have placed a buy order at 100. You need not place a stop loss order till your trade gets executed. Once your trade gets executed, you have to place another order for Stop Loss.

Now lets assume that CMP(Current Market Price) is 100.50.

Stop Loss Order should be like this

Type= Sell

Quantity = Quantity you have got (received).

Price=99.40

Trigger price =99.50

Note: Trigger price is the price at which your order gets triggered (fired). Till then it’s on hold.

So in our example If CMP falls from 100.50 to 99.55 nothing will happen but at 99.50 your order (Stop Loss) for sell will get executed at a price of 99.40 so your loss would be limited to 0.60 (100-99.40) only.

Additional Points:

Percentage Of Stop Loss

For day trading stop loss of 1-2% max is recommended. Some traders like me use 0.5% stops, which is what I have explained (100-0.5%*100=99.5). You have to decide the % according to your experience & confidence.

If you don’t use stop loss order the price can go down by 5% or even 20% & you won’t be able to do much then, hence for every trade without fail you should use stop loss order.

A warning, don’t ever think that just because you have placed stop loss order, you are 100 % safe. That’s not the case even after a stop loss order you can suffer huge loss. Surprised? See how.

In the above example if the your stop loss order gets triggered at 99.50 for 99.40 but there is no buyer at 99.40 so the order will get triggered but not executed till there is some one ready to buy at 99.40. In mean while some one else has put a sell order at 99.30, now you are at number two still waiting, then if some one puts a sell order at 99.10 you are at number three & hence your order may left behind while others keep putting orders at less than your order & you may wonder why my stop loss order did not get execute!!!!!!!!!!!

Solution for above problem is as follows.

The gap between trigger price & price is important. If you want your stop loss order to be more secured, increase the gap.( Gap between Trigger Price & Price). i.e. triggered price at 99.50 & price 99.10(instead of 99.40). You should change the gap depending upon the share you trade. More volatile stocks require big Gap while for slow movers small Gap is enough. You can decide the Gap on the basis of difference between best buy & best sell (bid /ask) in second window.

Stop Loss For Shorting

For shorting that is selling first & then buying, the stop loss order has to be reversed as follows.

If you have shorted at 100(CMP=99.50)

Stop Loss order should look like this

Type =Buy

Quantity = Quantity you have shorted

Price=100.60

Trigger Price =100.50

Cancel/Modify Stop Loss Order

The most important thing if your stop loss does not get hit & you earn profit by squaring of your position; do not forget to cancel the stop loss order. Yes I repeat do not forget to cancel the stop loss order. Other better option is that you can modify your stop loss order as Trailing Stop till the execution. (I do this as I forget to cancel the stop loss order.)

Following example can explain how you can do this.

Your Stop Loss for first example was 99.50 for 99.40, right? Now if the CMP has gone up from 100.50 to 102.20, you can modify your stop loss order to 101.10 in place of 99.50 & 101.00 for 99.40. If price keeps going up, keep following the price by modification.

Always remember the following rule.

For buy's Stop Loss Order (Type=Sell) “Trigger Price” should be more than “Price” of Stop Loss Order & for Short Selling's Stop Loss Order (Type=Buy) “Trigger Price” should be less than “Price” of Stop Loss Order.

Important Note:

Some Trading Systems allow Trader to enter Stop Loss Order at the time of Actual Order and some Systems allow Stop Loss Order to get automatically cancelled against squaring off position.

Happy Day Trading
Vishal Deshpande

Source : http://readersplace.blogspot.com/2008/03/secrets-of-stop-loss-order-in-stock.html

Check the above , the link seems to be not working

 

[ash.paul]

nice one mate. thanks for your kind support.

 

[DNSHUKLA]

I could not follow this stop loss theory. I think this is one more way to lure into extra trade by a broker. Unfortunately whenever I have put stop loss it always triggered. So I stopped using it. and now I will place direct order whenever price movement is not favouring. Only thing i have to be very vigilant for my open position. SHUKLA

 

[rajatheroyal]

Excellent post,rlv.

 

[ind_eco]

Hi RVLV,
Great post. It is an eye opener. I have been fed up trying to use stop losses as sole risk management tool. Keep up the good work. If you are aware of other alternatives to stop loss, please mention them also.

 

[bandlab2]

i know i am asking too much. but actally not. simple sotware can do this. can i place s/l and target price order in a single order. example, buy at 100, s/l is 90 and target is 120. i want to place a single sell order , at 90 or 120 whichever occurs first. if stock goes up and hit 120, sell. or if it goes own to 90, sell. our lazy guys cant do such simple things. how stupid, we export complex IT solutions but cant write a order plaement software that checks two variables and converts to a limit order

if we have such a s/w, i can place single order and take a break. need not keep checking the price all the time

 

[sushil00033]

stoploss only benefit brokers

 

[AW10]

StopLoss helps to preserve the capital of trader and remove the emotions from trade once the position is opened. If one is getting stopped too frequently then problem is with the level where stop is placed. Placing SL order at random price level ensures that they will get hit. but if they are placed few ticks away from market turning points (swing pivot points) then they serve the purpose.

If one is serious about long term trading success, then discipline of using SLoss alone will make huge difference in the result. (ofcourse, one needs to learn about where to put SL, how much of risk these stops will create for account, how and when to trail stops to breakeven and other profit protection levels etc).

Benefits of SL are far more useful then getting wrongly stopped out in few trades.
It helps the trader more then anybody else. Helps him to come back to market tomorrow.

Happy Trading.