Setting the right stop loss and target in intraday trading is essential to managing risk and securing profits. Many traders fail not because they pick the wrong stocks but because they don’t have a proper trader stop loss strategy. Whether you are new to trading or an experienced trader, understanding stop loss meaning, different methods of stop loss trading, and how to set stop loss and take profit levels can significantly improve your success in the market.
What is Stop Loss in Share Market?
A stock market stop loss is a predefined price at which a trader exits a losing trade to prevent further losses. It acts as an automatic trigger that closes the position when the stock reaches a certain price. The main purpose of using a stop loss in share market is to limit potential losses and protect capital.
For example, if you buy a stock at ₹500 and set a stop loss at ₹480, your position will automatically close if the stock price falls to ₹480, limiting your loss to ₹20 per share. Without a stop loss, traders might hold onto losing positions for too long, leading to larger financial losses.
Best Ways to Set Stop Loss in Intraday Trading
1. Percentage-Based Stop Loss
One of the simplest methods to determine stop loss and take profit levels is by using a fixed percentage. Most professional traders risk only 1-2% of their total capital on a single trade.
For example, if you have a trading capital of ₹1,00,000 and decide to risk 1% per trade, the maximum loss you can afford is ₹1,000. This means your stop loss trading level should be set accordingly to ensure you don’t lose more than ₹1,000 on any trade.
2. Support and Resistance-Based Stop Loss
Identifying support and resistance levels can help you set a more precise trader stop loss.
- If you are buying a stock, place the stop loss in share market just below a strong support level. If the stock price falls below that level, it may continue to decline, making an exit necessary.
- If you are short-selling, set the stock market stop loss just above a resistance level. If the price breaks above resistance, it could continue rising, signaling you to exit.
3. Volatility-Based Stop Loss Using ATR
A more dynamic approach is using Average True Range (ATR), which measures market volatility. Setting the stop loss at 1.5 to 2 times the ATR value helps prevent unnecessary stop-outs.
For instance, if a stock’s ATR is ₹5, setting a take profit stop loss at ₹7-₹10 ensures that normal price fluctuations do not trigger your stop loss too soon.
4. Moving Averages for Stop Loss Placement
Many traders use moving averages to place their stop loss. If a trader buys a stock above the 50-day moving average, setting a stop loss trading level just below the average is a good practice. Similarly, for shorter-term trades, using the 20-day exponential moving average (EMA) can provide effective stop-loss levels.
5. Candlestick-Based Stop Loss
A candlestick-based stop loss considers the price action of the previous trading session.
- For long positions: Set the stop loss just below the low of the previous candle.
- For short positions: Set the stop loss just above the high of the previous candle.
This method is particularly useful for breakout trades where the price moves strongly in one direction.
TradingView is a great tool for intraday trading analysis. It provides real-time charts, customizable indicators, and drawing tools to help traders make informed decisions.
How to Set the Perfect Target in Intraday Trading?
Just as setting a stop loss is crucial, determining an effective take profit stop loss level ensures that traders lock in gains before the market reverses.
1. Risk-Reward Ratio Method
A successful trader always follows a risk-reward ratio. A minimum 1:2 risk-reward ratio means that for every ₹100 risked, the potential reward should be at least ₹200. This ensures that even if half of the trades fail, the trader still remains profitable.
For traders looking for higher profits, 1:3 or 1:4 risk-reward ratios can be more effective, especially in trending markets.
2. Previous Highs and Lows for Targets
Looking at past price movements helps in determining realistic target levels. If a stock was previously rejected at a certain price level, that becomes a potential take profit stop loss point.
For example, if a stock is currently at ₹500 and previously hit a high of ₹520 before reversing, setting a target around ₹518 ensures profits are booked before a possible reversal.
3. Fibonacci Retracement for Target Setting
Fibonacci levels are widely used in technical analysis to determine stop loss and take profit levels. By plotting Fibonacci retracement levels, traders can identify potential resistance levels where the price might reverse.
For instance, if a stock moves from ₹100 to ₹110, Fibonacci extensions might suggest potential targets at ₹112, ₹115, and ₹118. These levels are frequently used by institutional traders, making them reliable for setting targets.
For more details on intraday trading, click here
4. Pivot Points for Targets
Pivot points are another effective way to determine profit targets. If a trader enters a long position and sees a pivot resistance level at ₹120, setting a target just below this level ensures profits are secured before a possible reversal.
How to Use Trailing Stop Loss for Better Profits?
A trailing stop loss allows traders to protect profits while giving the trade room to grow. Instead of setting a fixed stop loss, a trailing stop loss moves in the direction of the trade as the price increases.
For example, if you buy a stock at ₹500 and set a trailing stop loss of ₹10, the stop loss will initially be at ₹490. If the stock price rises to ₹520, the trailing stop loss will move to ₹510. This way, even if the price reverses, profits are locked in.
Trailing Stop Loss Meaning and Benefits
The primary benefit of using a trailing stop loss is that it eliminates the need for manual intervention. Traders can let their profits run without fear of losing gains due to sudden reversals. A trailing stop loss is particularly useful in trending markets, where prices move consistently in one direction.
Final Thoughts
Setting the right stop loss and take profit in intraday trading requires a balance of risk management, technical analysis, and discipline. A well-planned stop loss in share market strategy helps limit losses, while an effective take profit stop loss strategy ensures profits are secured before a potential reversal.
By using techniques like support-resistance levels, ATR-based stop loss, Fibonacci retracements, and trailing stop loss, traders can improve their success rate in the stock market. The key to consistent profits lies in following a structured approach and maintaining emotional discipline.
Stay connected! Subscribe for more insights and share your thoughts in the comments!
