Best Ways To Keep Stop Loss For Intra Day Trading

by Dilip Shaw Date: December 30, 2016

in Intraday Trading

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Learn the best ways to keep stop loss in the system for intraday trading.

As soon as a demat account is opened for trading most people start trading Intraday. When you trade Intraday it is highly recommended that you keep SL (Stop Loss) in the system and not leave any trade without stop loss in system.

Why Most Traders Start With Intraday Trading?

1. Intraday trading looks very attractive because traders think they can make money every day. Fact is that they do not, in fact after trading Intraday and speculative trading I myself lost a lot of money when I started trading.

2. Brokers give a lot of leverage in day trading. Day trading is done using the MIS trading advantage. MIS stands for MARGIN INTRADAY SQUARE-OFF. It means that if you do not close the trade by 3.15 pm your broker will close the trade anytime between 3.15 to 3.29 pm. Most brokers have automated this process to reduce the risk.

Because MIS positions are not taken overnight, the risk is slightly less therefore brokers can give more leverage. In India brokers block only 10% of the required margin. For example if a stock is trading at Rs. 500 and a trader wants to buy 300 shares for Intraday trading total money required to buy the shares is 500*300 = Rs. 150,000. If traded for intraday under the MIS, brokers will block only 10% of 150,000 = Rs.15,000/-.

Why they block only 10%? Because it is assumed that intraday movement can only lose maximum 10% of the total amount not more. However if there is more loss than the margin blocked, brokers will call their customers to close the trade or add more money to their account. If the customer does not responds, they close the trade immediately. However these chances are rare.

Traders however should be more cautious when trading Intraday therefore it is highly recommended that you keep a stop loss in the system as soon as the original trade is completed.

If you do not keep a stop loss there can be lot of problems during the trade.

1. Your Internet connection may be disrupted and you may not know what is happening to your trades. It may end the day in huge loss therefore keeping stop loss in the system as soon as possible is a must.

2. Due to some emergency you may have to leave the system and with no stop loss in the system you may lose a lot of money.

3. Your computer may have issues and you may not be able to see your trades. In this case call your broker and ask them to put stop loss in your account.

Here are the best ways to keep Stop Loss in the system.

Most Popular Method Normal Stop Loss Orders

This is very popular among Indian Intraday traders. Almost every Intraday trader knows this method. This method is simple, just take a trade and keep a stop loss in the system as soon as the trade is completed.

For example:

1. Buy Stock XYZ at 95, Stop Loss (Sell) at 90, Target (Sell) at 100, or,
2. Sell Stock XYZ at 95, Stop Loss (Buy) at 100, Target (Buy) at 90.

If Ex. 1 is being decided by the trader, they will buy the stock as soon as it reaches 95 and immediately thereafter keep a Sell Order in the system at 90, to avoid more than 5 points loss. If they are wrong and the stock falls down to 90, the Stop Loss gets triggered and the order is sold at 90 with the max loss of 5 points.

The above can be done on Options and Futures as well.

Please note that Intraday or day trading margin blocked for Equity Cash, Options and Futures differs because of the risk involved.

There are two types of Stop Loss Orders.

A) Trigger Price Orders:
B) Limit Price Orders:

Here the broker trading system asks for a Trigger Price and a Limit Price.

Lets take the above Example 1 – Buy Stock XYZ at 95, Stop Loss (Sell) at 90, Target (Sell) at 100.

Suppose the trade has been taken and the trader decides to take a Stop Loss between 90 and 88, then the Trigger Price should be kept at 90 and the Limit Price at 88. This will ensure that the stop loss gets executed between 90 and 88 only.

Please note that for the Buy Stop Loss orders, the Limit Price has to be higher than the Trigger Price.

For above Example 2, Stock XYZ was sold at 95 and the trader wanted to take stop loss between 100 and 102. In that case the Trigger Price will be 100 and the Limit Price will be 102.

The above will ensure that the stock is sold between 100 and 102 not above 102.

Difference between Trigger and Limit Price

The Trigger Price is the place where the Stop Loss or the Profit Taking Order gets activated in the market and the system tries to sell or buy back the trade with the best possible buyer or seller between the Limit and the Trigger Prices. However if there is a jump, and no trade takes place in between the Trigger and Limit price, then the order gets pending and the Sell or Buy order does not get executed.

Warning:

During very volatile market conditions it is highly recommended that both the Trigger and Limit prices are entered in the system, else if only the Trigger price is entered, the order will be completed at any level below or above the Trigger Price as the trader has not specified any limits on the Stop Loss Order.

For example, if the trade was Buy Stock XYZ at 95, Stop Loss Trigger at 90, No Limit Order, Target (Sell) at 100, and if by chance a bad news comes in the stock and it suddenly falls from 95 to 71, then the Sell Trigger Order gets executed at 71 and the loss goes to 95-71 = 24 points, instead of 5 points as decided by the trader.

This mistake is being done by a lot of Intra day traders in the world. Please ensure you put both the Trigger and the Limit Order Price in the system to avoid such a situation from incurring huge loss.

Another popular stop loss method is percentage on margin blocked stop loss method.

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About the author: Dilip Shaw I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.