Risk management is a critical part of your trading strategy. A Stop-loss order is an effective tool to minimize risks when the market starts moving in an unfavourable direction. Keep reading if you would like to understand more about Stop-loss orders and how you can benefit from them.
What is a Stop-loss Order?
A Stop-loss order allows traders to limit their losses by exiting a trade when a specific price known as trigger price is reached.
Using Stop-loss orders can help to reduce your chances of losses in a trade.
A very important part of stop-loss orders is Trigger Price. This refers to the desired price at which you want your order to be executed. When the security price reaches the trigger price, the stop-loss order is activated.
There are two types of Stop-loss Orders:
Stop-loss Market Order: Only Trigger price
In this case, once the trigger price is reached, the Stop-loss Order gets converted into a Market Order.
Stop-loss Limit Order: Trigger price and Limit price
In this case, when the security price reaches the trigger price, the Stop-loss Order gets converted into a Limit Order.
How does a Stop-loss order work?
Consider this example: You have a buy position of stock ‘X’ at ₹100 and wish to place a sell Stop-loss order for stock X at ₹95 then,
- For a Sell Stop loss-Market order:
- Trigger price = ₹95
What this means is that when the Last Traded Price (LTP) hits ₹95, a Sell Market order will be activated, and your position will be squared off at the available bid price.
- For a Sell Stop loss-Limit order:
- Trigger price = ₹95
- Let’s keep the Limit Price at ₹94. (Remember, for a sell Stop loss Limit Order, Trigger Price => Limit Price ).
When the LTP hits ₹ 95, a Sell Limit Order gets activated, and your order will be squared off at the next available bid above the limit price of ₹94. In this case, your Stop loss order may get executed at a price => ₹94.
Note: From the above example, if the current market price falls below ₹94 and doesn’t cross ₹94 at any time during the market hours, your stop-loss order will not be executed.
Now let’s consider, you have a sell position of stock ‘X’ at ₹100 and wish to place a stop-loss order at ₹105.
- For a buy Stop loss-Market order, the trigger price is ₹105. So, when the market price reaches ₹105, it will trigger a Buy Market Order, and your position will get squared off at market price.
- For a buy Stop loss-Limit order, let’s say you have set the trigger price at ₹105 and Limit Price at ₹106 (For a buy Stop loss Limit Order, Trigger Price < =Limit Price ).
Hence, when the market price reaches ₹105, the buy limit order will be activated, and your position will get squared off at the next available ask/offer below ₹106. In this case, your Stop loss order may get executed at a price <= ₹106.
Note: From the above example, if the current market price doesn’t go below ₹106 at any time during the market hours, your position will remain open.
How to place a Stop-loss Order with Angel One?
You can place a Stop-loss Order by following these simple steps on Angel One mobile application:
- Select the scrip → to click on ‘BUY’ or ‘SELL’
- Go to the ‘order’ window and select ‘Stop-loss’
- Enter the ‘Quantity’ and ‘Trigger price’
- Select Limit/Market to place Stop loss Limit/ Stop loss Market order, respectively
- Enter the ‘Price’ if you are placing a Stop-Loss Limit Order
- Click on ‘BUY’ or ‘SELL’ and confirm to place your Stop-loss order
Trailing Stop loss Order:
A Trailing Stop-loss is an order that lets you set a maximum value or percentage of loss you can incur on a trade.
- If the security price rises or falls in your favour, the trigger price jumps with it at the set value or percentage.
- If the security price rises or falls against you, the trigger price stays in place depending on the nature of the order.
A Trailing Stop loss Order adjusts the stop price at a fixed per cent or value above or below the stock’s market price, depending on the nature of trade.
How does a Trailing Stop loss order work?
For a Buy Position of stock X at ₹100, consider the Trailing Stop-loss fixed at ₹ 10.
- If the LTP of ‘X’ falls to ₹90, a Sell Market Order is sent, and your position gets squared off at market price.
- If the LTP of ‘X’ increases to ₹120, the sell Stop-loss order adjusts to the trigger price of ₹110.
For a Sell Position of ‘X’ at ₹100, consider the Trailing Stop-loss set at ₹10
- If the LTP increases to ₹110, a Buy Market Order will be executed at market price.
- If the LTP of ‘X’ falls to ₹90, the Buy Stop-loss order will adjust to the trigger price of ₹100.
How to place a Trailing stop-loss order with Angel One?
You can place a Trailing Stop-loss order as a part of Robo Order in Angel One mobile app following these simple steps.
- Select the scrip —> Select ‘ADVANCE TRADE’ on the order window
- Go to Robo Order
- Click on the checkbox next to Trailing stop-loss
- Enter ‘Trigger price’ and ‘LTP jump price’
- Click on ‘BUY’ and confirm to place your Trailing stop-loss order
Stop-loss is a simple yet effective tool that can be used to minimize your losses and lock in your profits. We hope this article has answered your queries regarding Stop-loss orders, and now that you know how to place Stop loss orders with Angel One.
What is Stop Loss?
Stop-loss is a tool that investors use to minimise the loss in a trade. Some traders define it as an advance order, which triggers an automatic closure of an open position when the stock price reaches the trigger price level.
Stop loss helps minimise losses but also limit profits from a trade.
What is Trailing Stop Loss?
A Trailing Stop-loss is an order that lets you set a maximum value or percentage of loss you can incur on a trade. If the securiy price rises or falls in your favour, the trigger price jumps with it at the set value or percentage. If the security price rises or falls against you, the trigger price stays in place depending on the nature of the order.
How does a Stop-loss get triggered?
Stop-loss can be your real saviour during a volatile market condition. A price level set at the beginning of the trade allows traders to close their position automatically when the stop-loss is reached. Squaring off takes place at the next price available at the trigger price level and helps limit losses.
Can I still lose money using a stop-loss?
Stop-loss is a simple tool used to limit losses when the market starts moving in an undesired direction. It is a mechanism used by traders to institute discipline in trading and prevent impulsive trades. It doesn’t guarantee any gain or loss of money in a trade
What is the 1% rule of trading?
The 1% rule defines the maximum limit of risk one can take in a trade or the risk-per-trade. It implies adjusting your position so that total loss doesn’t cross 1% of your trade value when the stop-loss is triggered. The 1% rule helps avoid significant losses.
Can I use stop-loss in trading with the AngelOne Trading app?
You can place a Stop loss order in AngelOne mobile app by following the below simple steps:
- Visit the AngelOne app and select the stock to Buy/Sell
- Select quantity of the trade
- Set’ Trigger price’
- Enter the price where you want to place stop-loss
- Confirm the stop-loss price, click on “Buy/Sell” and confirm the order