A stop loss is one of the most important risk management tools in trading. It helps you limit losses by automatically selling a stock when it reaches a price you set.

How Does a Stop Loss Work?

Say you buy a stock at ₹100. You set a stop loss at ₹95. If the stock price falls to ₹95, your broker automatically sells the stock, limiting your loss to ₹5 per share.

Types of Stop Loss

1. Fixed Stop Loss

You set a specific price below your buy price. Once triggered, the order is executed at the available market price.

2. Trailing Stop Loss

The stop loss moves up as the stock price moves up. For example, if you set a 5% trailing stop loss and the stock goes from ₹100 to ₹120, your stop loss moves from ₹95 to ₹114.

Why Use a Stop Loss?

  • Limits downside risk
  • Removes emotional decision-making
  • Protects capital
  • Helps maintain trading discipline

Where to Set a Stop Loss?

Common approaches include setting it below support levels, using a fixed percentage (2-5%), or using technical indicators like ATR (Average True Range).

Disclaimer: This article is for educational purposes only.