How to Calculate Stop Loss in Intraday Trading? (2024)

FAQs

How to calculate stop loss in intraday trading? ›

A common practice is to set the stop-loss level between 1% to 3% below the purchase price. For example, if you buy a stock at Rs. 300 per share, a 2% stop loss would be triggered at Rs. 294, helping you limit potential losses while accommodating normal market fluctuations.

The calculators are based on a formula like this: (Target Profit or Loss / Percentage Profit or Loss) x asset pip size = Price change in pips from the current quote to set Take Profit or Stop Loss. Take Profit / Stop Loss = Initial price +/- price change in pips. Let's look at an example.

The 7% stop loss applies to any stock purchase at any level. If you bought a stock at 45 and the buy point was at 43, you want to calculate the 7% sell rule from your purchase price.

For day traders and swing traders, the 1% risk rule means you use as much capital as required to initiate a trade, but your stop loss placement protects you from losing more than 1% of your account if the trade goes against you.

Intraday Trading Formulae:

We need to add them up as: H + L + C = X Now, the derived value must be divided by 3: X/3 = P (which is called the pivot point) Then, multiply P with 2: X/3 X 2 = Y It is assumed that a stock moving above the pivot point is likely to continue its journey till the first resistance level.

The best trailing stop-loss percentage to use is either 15% or 20% If you use a pure momentum strategy a stop loss strategy can help you to completely avoid market crashes, and even earn you a small profit while the market loses 50%

The golden rule of Stop Losses is that they should never be moved away from the market once the trade is opened. If a trader feels that their stop loss is incorrectly placed, they are recognising that the foundations of their trade are incorrect and therefore they should close out.

One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk (Table 1). For example, if you are trading a $50,000 account, and you choose a risk management stop loss of 2%, you could risk up to $1,000 on any given trade.

Usually, the one who wants to avoid a high risk of losses set the stop-loss order to 10% of the buy price. For example, if the stock is bought at Rs. 100 and the stop-loss order value is set to 10% (Rs. 90), in such a case when the price reaches Rs.

A stop-loss order is a buy/sell order placed to limit losses when there is a concern that prices may move against the trade. For instance, if a stock is purchased at ₹100 and the loss is to be limited at ₹95, an order can be placed to sell the stock as soon as its price reaches ₹95.

Is 20% stop loss good? ›

Price volatility

If a stock is stable, setting a stop-loss at 5% or 10% may be reasonable. But with a more volatile stock, something closer to 20% may be a better strategy to avoid stopping out on your positions too frequently.

Disadvantages. The main disadvantage of using stop loss is that it can get activated by short-term fluctuations in stock price. Remember the key point that while choosing a stop loss is that it should allow the stock to fluctuate day-to-day while preventing the downside risk as much as possible.

A common rule is to aim for a risk-reward ratio of at least 1:2, meaning that for every dollar at risk, you aim to make at least two dollars in profit. Adaptability: Be flexible in adjusting your stop loss and take profit levels as market conditions change.

A stop-loss order is placed with a broker to sell securities when they reach a specific price. 1 These orders help minimize the loss an investor may incur in a security position. So if you set the stop-loss order at 10% below the price at which you purchased the security, your loss will be limited to 10%.

Calculate Stop Loss Using the Support Method

An area of support is where the stock price often stops falling, and an area of resistance is where the stock price often stops rising. Once your support level is determined, you simply have to place your stop loss price point below the support level.

The 6% stop-loss rule is another risk management strategy used in trading. It involves setting your stop-loss order at a level where, if the trade moves against you, you would only lose a maximum of 6% of your total trading capital on that particular trade.

Set Stop Losses

The stop-loss order prevents emotions from taking over and will limit your losses. Importantly, once the stop loss is in place, do not adjust it as the stock price moves lower. It makes more sense to adjust the stop price when shares are moving higher.

This rule suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change. Then, there's usually a period of around 30 days where the stock's price stabilizes or corrects before potentially starting a new cycle [1].

For example, if you buy Company X's stock for $25 per share, you can enter a stop-loss order for $22.50. This will keep your loss to 10%. But if Company X's stock drops below $22.50, your shares will be sold at the current price.