simple Stop-loss strategy

A simple Stop-loss strategy

Everybody knows and use it but only a few people know how to keep a good stop-loss.

Few questions for you.

  • Have you been at a loss due to Stop-loss? You wondered what’s a decent stop loss level.
  • Ever been bitten by a stop loss that simply triggered before the stock soared to the degree you expected at first, going away you high & dry, and tally your losses?
  • Does the triggering of stop-loss alter your purpose of the trade from optimistic to pessimistic or vice versa?

If your answers are YES, then you are not alone. A majority of the traders within the stock markets can have an identical story to inform you concerning the victims of the stop loss.

If you retain too tight stop losses, then you book too several tiny losses. If you retain massive stop losses, then you tend to book massive losses anytime a stop loss is triggered. Either way, you are the loser whenever such a stop loss gets triggered. It becomes a mystery and trader says “ Ab Mein Kya Karun”

So why do traders and analysts offer such a lot importance to a stop loss?

I have a solution for you. Learn how to use a stop-loss to run your profits and cut your losses for maximum profits!.

The important point to remember while taking trades:

Risk reward ratio 1: 3

Firstly, look for Low-risk high reward trades. Your risk should not be more than your targets, Preferably risk reward ratio should be Risk reward ratio 1: 3. For 3 rupee profit, you can not risk more than 1 rupee.

Strategy: Defensive Stop-loss  ( Minimizing risk, maximizing gains )

It is a very simple and straightforward way to do a trade.

Example 1:

You want to buy 1 lot of a stock of HDIL @ 100, stop-loss 97, Target 109

Now, Instead buy 2 lots of HDIL @ 100.

Book 1 lot out @ price equal to stop-loss value
Viz. Book out 1 lot @ 103.

Now, we have a remaining position of 1 Lot of HDIL.

You have booked 3 rupees out in 1 Lot. So, if by chance stock goes back and Hits your stop-loss, then still you are at ZERO LOSS ………………………………….

And if the stock goes to hit targets, the additional 3 rupees gained by 1st lot are the additional bonus.


Example 2:

Case 1:

Ram bought BHEL 2 LOTS @ 200
His target is 210 and stop-loss 197

Ram booked out profits in 1 lot @ 203 (equal to stop-loss value)

Now, BHEL hit his stop-loss for remaining 1 lot.

Ram Final Loss= ZERO

Case 2:

Ram bought BHEL 2 LOTS @ 200
His target is 210 and stop-loss 197

Ram booked out profits in 1 lot @ 203 ( equal to stop-loss value)

Now, BHEL hit his Target for remaining 1 lot.

Ram Final profit = 13 rupee

Disclaimer: This strategy is what we work on and you have to decide on your own whether to follow or not. We are not responsible for any loss due to this strategy. Any queries and comments are welcome.

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