I was surprised when I found out that my good friend
who is in Market since 98 is not clear about Stop Loss. I also got the message
from this blog reader that he had lost good amount in this down turn
While I am "all in Cash" this time also since my Stop loss was 3800 on nifty:
Hence I am reproducing what I sent to my friend, on what is stop loss:
Stop Loss is the "Funda"/"Policy" you need to implement
and not just order on icicidirect.com/sharekhan.com.
This is how it works:
StopLoss is the "Predecided" value at which the loss will be booked
if the price of share goes against your trade before creating the position.
ie If I buy Reliance at 1800 and keep stop loss at 1700 that means
I "Pre-Decide" that if the share price falls bellow 1700 it is not
going to rise hence sell reliance and book loss without averaging.
Now you can put such order in icicidirect but stoploss will continue
only for that day. While what this "Funda" means that you need to track
the prices and sell on the day Reliance price goes and closes bellow 1700.
While I use something called trailing stoploss. Here I keep moving
my stoploss upward (downward revision not allowed). So now assume
that Reliance share moved from 1800 to 1900 I move my StopLoss to 1800
and then if it moves to 2500 I move my StopLoss to 2400. Assume that
price now falls to 2380. I sell Reliance at 2380 <>http://learnthetrick.blogspot.com/2007/02/importance-of-stop-loss.html
I have also kept some usefull links on the right side of this blog but people
tend to look at this blog only for "tips". I suggest all to read following http://yndesai.110mb.com/yndpages/doku.php?id=faq:newbie
Very few might have "LEARNED THE TRICK" alas !