can u explain what do you mean by stop loss? can u explain it with the help of an example?

A stop loss (i.e. a stop loss order) is used to limit the possible loss when a trader's position go the wrong way and start to lose money. A stop loss is basically a stock trading strategy to limit your disadvantage. Trader is not always right, so only good stop loss strategy can protect you.

If the stock is trading at Rs.100 per share and usually doesn’t fluctuate more than Rs.5-6, then a stop loss order at Rs.89.00 might be reasonable.

Im a noob when it comes to stock trading but i thought stop loss was only subject to forex, its quite surprising to know that stop loss as a feature is available in Indian Stock Market.

Pardon my ignorance

Yes, stop-loss orders are available in almost all types of trading.

A stop-loss order can be a limit order or a market order.

Example of a limit stop-loss order:

Trigger price: 99
Sell price: 98
Quantity: 100

This means that if a trade is recorded at 99 or lower than 99, then an order to sell at 98 is activated.

Example of a market stop-loss order:

Trigger price: 99
Sell: At Market
Quantity: 100

If a trade is recorded at 99 or lower than 99, then a market sell order is activated, that is 100 shares will be sold at whatever best price buyers are offering. Such orders can be sometimes dangerous, because one doesn't know what this best price may be.

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this explanation is too confusing. Can it be explained in a more simpler way?

What part are you confused about?

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thanks for the explanation alchemist
so basically the best price here in ur mentioned case would be 99x100 = 9900 right.

The best price here means the best price that one can get and not the best price one wants...

there is a big difference between the two .

If the LTP (last traded price) was 99 and you give a sell order for 100 shares @ market..

the shares would be sold to best price offered.

if there are no buyers at price higher than 90... then you shares will get sold at 90... as 90 is the best price that you are getting.

if there are no buyers at price higher than 85... then you shares will get sold at 85... as 85 is the best price that you are getting.

you may want any price....but a market order means shares will go at price that the market is offering.

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"the market stop loss" Paragraph is too confusing .

Point well understood Thanks for elaborating

Here Market = Large amounts of people who speculate on the best offer to buy a certain share? and at a price and this price is the market price?

All buy orders are buy offers.

Highest buy offer is "best buy".

All sell orders are sell offers.

Lowest sell offer is "best sell"

When buy and sell offers become match.... trade takes place and this becomes the price.

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thanks for the info.

THANK YOU TEACHER , that was a very complicated point made simple. Absorbed it easily

Well thank you

... actually that was my question to the alchemist but im glad you found the answer in it

Hi Alchemist, I am a little confused about the best buy ,best sell point.
when we buy,it would be a good deal if baught at lowest price, that is ->
best buy =lowest price
and
when we sell, it would be a good deal if sold at highest /max price ,that is->
best sell=highest price

but this is contracdicting with what you have suggested....Please correct me if I am wrong.

exactly.

best price is the lowest possible price for which you can buy a share.

the best price you can buy a share for is the lowest price that a seller is willing to sell at - that is the best sell price available in the market.

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Hi Alchemist,

I have a question regarding Limit Price & Market Price. The scenario is as follows.

I have 100 shares & I have offered them at the market price for which LTP is 50 Rs.

Now at the same time there are no bids ready for this stock & an investor put a bid for 100 shares @ Market Price.

So now, do the trading will be completed at LTP or the both offers wait for the limit price, to execute ?

I have another doubt regarding how the Open price for the day is declared ? & who will be doing it ?

I have also faced an issue while selling a share. I am unable to offer the selling price greater than Day's High. Is it means that if & only if there is any bid greater than Days High, then only my offer is accepted by the market ? .

Lets assume that Infosys is trading at 1509 as of LTP. There are 3 people, Alchemist, Shailesh and raj808 with say 100 shares each. And there are 3 people wanting to buy these shares, KwokFist, sagar and Learner.

Consider these bids

Selling Offers............................................ ...........Buying(bid) Offers

Alchemist selling price (qty=100): 1510.....................KwokFist Buying Price(qty=100): 1508
raj808 selling price(qty=100): 1512...........................sagar Buying Price(qty=100) : 1506
Shailesh selling price(qty=100): 1514.........................Learner Buying Price(qty=100) : 1504

The last traded price was 1509. As you can see the best offer price (cheapest offer price) of 1510 is not matching the best bid price of 1508 (highest buying price). At this rate there will never be a trade.

However, lets assume that KwokFist just got a market tip that Infosys price is about to go up so he feels that since its going up he can book some profits later and decides to increase his bid price to the current best selling price of 1510/-. Immediately the trade takes place as Best Selling price matched the Best Buying price. At the end of the trade the market will look like this




LTP:1510 Alchemist selling price (qty=100): 1510.....................KwokFist Buying Price(qty=100): 1510

raj808 selling price(qty=100): 1512..................................sagar Buying Price(qty=100) : 1506
Shailesh selling price(qty=100): 1514............................Learner Buying Price(qty=100) : 1504
Seller1 selling price(qty=200): 1516............................Buyer1 Buying Price(qty=100) : 1502
Seller2 selling price(qty=200): 1518............................Buyer2 Buying Price(qty=100) : 1500
Seller3 selling price(qty=400): 1520............................Buyer3 Buying Price(qty=100) : 1498
Seller4 selling price(qty=100) : 1522............................Buyer4 Buying Price(qty=100) : 1496
Seller5 selling price(qty=100) : 1524............................Buyer5 Buying Price(qty=100) : 1494

Things are back to square1 where no selling offer are matching any buying offers till one of the sellers of one of the buyers change their offers. It can also happen that suddenly a rich spoilt kid like spacenoxx wants to buy some stock and doesnt want to wait. So he offers a price of 1520 for 1000 shares. So all those who were asking for 1520 or lower will be ableto sell their shares at 1520 as they are bing offered the price they wanted or better. No picture looks like this:


LTP=1520raj808 selling price(qty=100): 1520..................................spacenox Buying Price(qty=100) : 1520
Shailesh selling price(qty=100): 1520............................spacenoxx Buying Price(qty=100) : 1520
Seller1 selling price(qty=200): 1520............................spacenoxx Buying Price(qty=200) : 1520
Seller2 selling price(qty=200): 1520............................spacenoxx Buying Price(qty=200) : 1520
Seller3 selling price(qty=400): 1520............................spacenoxx Buying Price(qty=400) : 1520
Seller4 selling price(qty=100) : 1522............................sagar Buying Price(qty=100) : 1506
Seller5 selling price(qty=100) : 1524............................Learner Buying Price(qty=100) : 1504

On NSE unexecuted market orders become limited orders at LTP.

On BSE, market orders are actually converted to limit orders at best buy or best sell price as applicable.

On BSE unexecuted market orders are canceled.

On BSE partially executed market orders become limited orders at LTP.

Open price comes from the first trade. The first two buy and sell orders to match create the opening trade.

The stocks must be in circuit, and so you are not able to put a higher sell price. For some stocks circuit limit is 5% or 10%.

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i've read somewhere that a stop-loss-strategy empirically is a bad solution and a lot worse than a simple buy-and-hold strategy...

Thanx 4 the info can any one plz tell me what is the thing with trailing stop loss. How to input it into systems like NEAT or Multex .

Trailing stop-loss is not different from the normal stop-loss.

It only means you keep moving the stop-loss higher as the stock moves higher.

You have to change the stop-loss manually.

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Hi Alchemist,
I have joined this forum recently although I have been reading the posts for last 2-3 months...please bear with me during my learning of the rules of this forum
First things first....I would like to mention that I like all of your posts a lot because of the details and realism in them...so please keep them coming...(I only wish to be that smart sometime in my future )
I would like it to be clarified what you mentioned....
As per my understanding, there could be four cases available at any point of time in any trading system...
1. Buy with Limit Price and Sell with Limit Price - they would have to be met otherwise no trade
2. Buy with Market Price and Sell with Limit Price - trade would happen at Seller's Limit Price
3. Buy with Limit Price and Sell with Market Price - trade would happen at Buyer's Limit Price
4. Buy with Market Price and Sell with Market Price - as there is no price which could be determined here, tool would use LTP (last traded price) as the trade price.

Is my understanding correct? If no, please correct. If yes, then your statements are also conveying same thing?

Hey...Alchem's post you are referring to was explaining what happens to market orders in NSE and BSE.

If you place a limit order, they will always be limit orders[limit order is where you tell what price you want to buy or sell. Market order is where you dont specify the buy/sell price but just want to buy them at current market price].
hope that helps.

You are getting confused.

A market order never remains in the system.

On NSE, a market order either gets executed or gets converted to limit order at LTP.

On BSE, a market order either gets executed or gets canceled.

=============================================

On both NSE and BSE, orders have a time priority. This means - price of the trade will be the price of the first placed order.

=============================================

Limit orders:

If sell @35 order comes after buy @36 order, trade takes place at 36.

If buy@36 order comes after sell@35 order, trade takes place at 35.

=============================================

Market orders:

If sell @market order comes after buy @36 order, trade takes place at 36.

If buy@market order comes after sell@35 order, trade takes place at 35.

A limit order can never come after a market order because a market order cannot exist in the system.

=============================================

Unexecuted market orders get converted to limit orders at NSE and rules of limit orders apply in such cases.

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Can I put a stop-loss on stocks in my demat a/c?

yes, but stop-loss orders are valid only for a day.

so you will have to put a fresh order everyday.

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I took a look at the Geojit site and they have a pull down menu with 1) buy, 2) sell, and 3) stop loss.

So I guess I should use option 3. I will then have to specify the scrip, the number of shares I want to "sell", the trigger price and the actual limit price.

Today's ET (8/4/2008) also has a piece on stop-loss with pros and cons.

Hi,
As I understood the purpose of placing stop loss orders immediately after buy/sell orders either in day trading or in long term investment is to limit the losses incurred when the markets fell down abruptly/not moving well as we expected.
This is very important activity one should not forget.

When you place "BUY ORDER" say value 'p'/share, the stop loss value be calculated normally depending upon the qty and the value of loss we could absorb without much worry.

ex (day trading) share value=Rs50/, qty=100 then it is worth to lose when the market is not doing as we expected Rs2/share ie Rs100/ total, then the stop loss value will be Rs48/ will do.
Another aspect to be considered is its support values S1/S2/S3 . One should find out from various technical analysis sites the stock pivot prices and support and resistance values , without knowing these values it is not worth doing trading.
Finally the stop loss value is determined by an individual, according to his approach style/attitude/temperament/sensitiveness
and previous experiences. There is no scientific equation derived.

wow!!! finally I got what I am looking for. I found a good teacher at last for rookies. Great going buddies. Keeping writing more and more. It will be nice to explain glossary with one example. an someone do that please. I also love to explain people-The way of improving.

hi

i have some question regarding stop loss trigger price

Q1. Is it true that when i want to purchase equity at a price greater than market price or i want to sell equity at a price lower than market price then only i can place a stop loss order?
Q2. Can i place a stop loss order which have same trigger price and limit price?
Q3. limit sell order have a big difference between trigger price(say150) and limit price (110)-if it once triggered then stock will be sold at the best available price>110.it may be 150,or 160,or 140----am i right?

answer for 2 - yes, both the trigger price and stop-loss price can be the same.

answer for 3 - yes, the trade always takes place at the best available price.

Question 1 isn't clear - why would anyone want to buy at a price greater than the market price?

Do you mean to say "buy when the price goes above a certain level"?

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thanks for ur answers.

Q1.Is it true that when i want to purchase equity at a price greater than market price or i want to sell equity at a price lower than market price then only i can place a stop loss order? (it is applicable when someone want to stop losses or fresh buy when the price goes above a certain level or want to short sell below a certain level)

can i put stop loss for option

Yes.

If you want to buy with a stop-loss order, your trigger price should be above the LTP (Last Traded Price).

Suppose LTP is 40.

If you put a buy order with buying price of 39 and trigger price of 38, the order will be triggered immediately.

The system only checks if LTP >= Trigger Price for stop-loss buy orders.

The system doesn't wait for 38 to come.

Yes, stop-loss orders are applicable to options too.

However, most options are illiquid and stop-loss orders may not work well with these options.

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This post clearly explains what stop loss orders are, why and how they are placed and how they get executed. Thanks to all contributors !
I have a question on the concept of trigger price, why is a Trigger Price needed ? One would place such a stop loss sell order when (s)he has made up my mind that (s)he does not want to hold these 100 shares below 98.

I could go ahead and place a normal limit sell order of 98 and that would also serve my purpose of keeping a stop loss.
Why should I add a condition here (Market Price falling below 99) to trigger my order ?
a. Is it that I want to avoid a situation when my 100 shares gets sold at 98 without Market Price falling below 99, is this normally possible ?
b. Or is it that system does not allow me to place / activate my limit sell order because CMP is something like 120 and my sell price 98 is considered too low.

Trigger price is a price at which the trader becomes sure that he should be closing the position.

Suppose in the morning trade, you buy a stock at Rs 100. The stock remains around 100 for some time.

Suppose it is trading in 99.5 - 100.5 range.

Now you know that once this range is broken the stock will move sharply.

Below 99.5, it will fall sharply. Above 100.5 it will rise sharply.

Thus, you decide a point at which you feel the range can be assumed to broken down and use it as the trigger price.

In your opinion, if the stock goes below 99, all longs will close their positions and the stock will fall sharply.

Thus, you keep a trigger price of 99. This means, you won't hold the stock if it falls below 99.

Your limit sell price may be little below 99 because once 99 is broken, everyone will rush to sell and price may not come to 99 again. So you keep a sell price of 98 and a trigger price of 99.

=================================

If you don't keep a stop-loss order and directly give a sell order at 98, the trade will be done at the prevailing market price i.e. 100.

It doesn't serve your purpose........you are actually closing your position at current price and not waiting for the range to break down.

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A wow learning for me today !

All this time I was thinking its the Sale Price that drives one to put the stop loss order.
But the fact; its the Trigger Price that drives the order and the Sale Price is just a number below the Trigger Price to ensure that the order gets executed with minimal loss.

The higher the sale price the lesser the realized loss, but then also lesser the probability that the order actually gets executed .

Now I can refine my own statement
One would place such a stop loss sell order when (s)he has made up mind that (s)he does not want to hold these 100 shares, if and only if the price falls below 99.
And 99 is not be taken on its face value, its an important support level.

Thanks again !!

Exactly.

BTW, I made a mistake in above post.

The system checks if LTP <= Trigger Price for stop-loss sell orders

and

LTP >= Trigger Price for stop-loss buy orders.

If LTP = Trigger Price, then also the order gets triggered.

So if you think 99 is a good support and shouldn't break, your trigger price should be 98.95. (Assuming you are long).

This will make sure that in case the stock bounces back after touching 99, your stop-loss sell order won't be triggered.

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