May 23, 2026
6 mins read
A trading account is used to buy and sell shares. It works with a demat account and a bank account. Today, trading accounts are usually opened online. Basic details are shared. Documents are uploaded. After verification, the account becomes active. Once active, trades can be placed during market hours through electronic stock exchange systems.
In intraday trading, a stop loss is a fixed price point. It helps control losses during fast market moves. When the price reaches this predetermined level, the trade closes on its own.
The stop loss is linked to the trade price. For a buy position, it is kept below the entry price. For a sell position, it is placed above the entry price.
The gap between entry price and stop loss is not the same for all trades. It changes based on price movement, market swings, and how much loss is acceptable in one trade.
Each time you place an order in the stock market, you expose yourself to the risk of the market moving in an unexpected direction. For example, if you are engaged in intraday trading and expect a bullish movement, a sudden downturn could lead to losses. Since intraday trading requires closing positions on the same day, there is often little time to wait for a reversal. A stop loss serves as an essential tool to manage this risk by allowing you to exit a miscalculated trade while minimising losses.
Each time while placing an order in the stock market, the trader is exposed to the risk of the market slipping away in the opposite direction. Suppose you are an and place an order expecting a bullish movement. However, the stock suddenly takes a hit when you place the order and starts plunging. Since intraday trading requires you to square off your orders on the same day, you may not have sufficient time to wait for a trend reversal. A stop loss helps you to exit a wrong or miscalculated trade by incurring reduced losses.
A stop loss works by automatically closing your position when the price hits a pre-set level. This ensures your losses are contained and cannot exceed your predetermined limit. By setting a specific stop loss value, you can effectively protect yourself from the negative outcomes of a poor trade, safeguarding your investments during intraday trading.
A stop loss works by squaring off your order when prices reach a certain predetermined level. Therefore, it is an effective tool for cutting your losses. Fixing a specific stop loss value ensures your maximum loss cannot exceed the limit you have set. As a result, a stop loss helps prevent a bad trade from worsening.
A stop loss is a price fixed before a trade starts. It is used to close a trade automatically.
This happens when the price moves in the wrong direction during intraday trading.
The stop loss depends on the entry price. For a buy trade, it is kept below the entry price. For a sell trade, it is kept above the entry price. This follows standard exchange trading practice.
The way a stop loss is calculated does not change often. The logic stays simple. Only the price level changes based on the trade and market movement.
Common ways to calculate a stop loss are:
Fixed price method
A fixed rupee amount is chosen. The stop loss is placed that far from the entry price.
Percentage method
A fixed percentage of the entry price is used. This keeps the price gap similar across trades.
Price level method
The stop loss is placed near recent support or resistance levels. These levels are seen on intraday price charts.
Although stop loss is an excellent way to minimise losses, traders often face a dilemma of how to set stop loss. One of the most critical factors that determine the success of a trade is identifying the right stop-loss level. If the stop loss order is set to close to the order value, small price fluctuations may set it off, and your position would get squared off immediately. You can determine your stop loss level using multiple techniques, such as the percentage method, support method and moving averages method. Let us understand these in greater detail.
The percentage method is one of the traders' most widely used techniques to determine their stop loss levels. The trader assigns the maximum permissible loss using a percentage. Suppose you would be all right if the stock price falls to 5% of its current value before you exit your trade. You purchase a stock currently trading at Rs. 500. Your stop loss will be set at Rs. 25 or lower, i.e. at Rs. 475.
The support method requires you to understand technical charts' support and resistance levels. The support level is the maximum level up to which stock prices can fall in an interval. Since this is the lowest value that stock prices attain, the support level is called the demand zone. The resistance level is the maximum level until which stock prices are expected to rise. While placing a buy order, it is recommended that you place your stop loss slightly below the support level, and in the case of sell orders, the stop loss can be placed a little above the resistance level.
The moving averages method is a simple way of determining your stop loss. During this method, an indicator 'moving average' is applied to the stock's charts. The moving average is a line that runs along the stock price. You can plug in your stop loss a notch below the moving average line. However, keeping a buffer is recommended so your position does not get squared off with the slightest of volatility.
To calculate stop loss, determine the acceptable risk percentage of your capital. Multiply this percentage by the trade’s capital amount. For example, with 2% risk and Rs. 1,00,000 capital, your stop loss is Rs. 2,000.
The formula involves adding or subtracting the Average True Range (ATR) from the entry price. For example, entry price minus ATR determines the stop loss for a buy order, while entry price plus ATR applies for sell orders.
Set stop loss slightly below support levels for buy positions and slightly above resistance levels for sell positions. This ensures trades are protected from small market fluctuations while aligning with intraday trading strategies.
Stop loss strategies include percentage-based, support/resistance-based, and moving average-based methods. The best approach depends on your trading style. Intraday trading often benefits from percentage-based stop losses, offering simplicity and rapid execution while minimising risks effectively.
Stop loss is a tool used in trading to limit potential losses. It automatically closes positions when prices hit pre-set levels, preventing substantial financial loss. This is especially crucial in intraday trading to manage market volatility effectively.
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