Stop Loss Methods

by Dilip Shaw Date: September 8, 2017

in Intraday Trading

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Traders trading Intraday should know where to take a stop loss. This article discusses some stop loss methods that you can follow.

Points / Cash Stop Loss Method:

This is the most common method that most Intraday traders use. Basically it is the amount one trader is willing to lose. Let say his total margin blocked is 1 lakh, and he is targeting 2%. This is 2000 profit a day. In that case his stop loss can be anywhere between 1000 or 2000 not more. This way if the trader is successful in 60% of the trades he makes money. This cash can be converted to points also. For example if 1 point is Rs. 2000, then profit can be 1 point and loss can be 0.5 to 1 point.

Average True Range (ATR) Stop Loss Method

Read my post on Average True Range (ATR). It goes into details of the ATR method calculation and how to use it for taking a stop loss.

Day High And Low Stop Loss Method

This is strictly for Intraday traders only. They can take a stop loss if the stock breaches the days low. For this the ideal time to start the trade is at 10 to 11 am so that the days low is clear. For positional trading last 30 days low is a good way to keep the stop loss. However if the last 30 day is way to low and you are not comfortable losing that much money then the Points / Cash Stop Loss Method is a better way to take a stop loss.

Software Indicator Stop Loss Method

This is advanced way to decide a stop loss. This is used by professionals with technical knowledge. These indicators can be moving averages, RSI indicators, stochastics, rate of change, trailing stop method (keep increasing the profits stops as the stock move up and keep booking profits in certain percentage of holdings until all is sold), etc.

Note that trailing stop method can be done for both booking profits and taking a stop loss.

For example a trader buys a stock at 100 and keeps 50% sell as stop loss at 99, if hit he brings the nest stop for rest at 98 – then there is a possibility that stocks bounces back and the trader ends up in profit.

As you can see the trailing stop method to take out profits or losses needs a lot of patience and is possible on big trade positions only.

Recommended Reading:

Average True Range ATR Stop Loss Method

Where Should You Take A Stop Loss In Stock Trading

Percentage On Margin Blocked Stop Loss Method

Second Stop Will Ask For Extra Margin

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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.