Stop Loss Orders: Protect Your Capital Like a Pro
Complete guide to stop loss orders in Indian stock market. Learn different types of stop losses, how to set them, and protect your trading capital.
The ₹3 Lakh Lesson Karan Didn’t Want to Learn
Karan was confident. He’d bought 1,000 shares of a pharmaceutical company at ₹500. “This will hit ₹600 in a month,” he told everyone.
The stock dropped to ₹480. “Minor correction,” Karan thought. Then ₹450. “It’ll bounce back.” ₹400. “I’ll wait.” ₹350. Now he was scared but refused to sell. ₹200. Company announced a scandal.
Karan finally sold at ₹180. His ₹5 lakh investment became ₹1.8 lakhs.
Loss: ₹3.2 lakhs (64%)
Had he placed a simple stop loss at ₹450 (10% below purchase), his loss would have been ₹50,000. Still painful, but not devastating.
This is why stop losses exist.
What is a Stop Loss Order?
A stop loss is an automatic instruction to sell (or buy, if you’re short) when a stock reaches a certain price.
Purpose: Limit your losses before they become catastrophic.
How It Works
You buy: 100 shares of Infosys at ₹1,500
Stop Loss: ₹1,400 (6.7% below buy price)
If Infosys drops to ₹1,400:
Order triggers automatically → Your 100 shares are sold
Maximum loss: ₹10,000 (vs potentially much more without SL)
Types of Stop Loss Orders
1. Stop Loss Limit Order (SL-L)
Most common in India.
Two prices set:
- Trigger Price: When to activate the order
- Limit Price: The actual execution price
Example:
Buy Price: ₹500
Trigger Price: ₹480 (order activates when price touches ₹480)
Limit Price: ₹475 (sell at ₹475 or better)
Risk: If stock crashes fast past your limit price, order might not execute.
2. Stop Loss Market Order (SL-M)
Only trigger price set. Executes at market price once triggered.
Example:
Buy Price: ₹500
Trigger Price: ₹480
→ When ₹480 hit, sells at best available market price
Pros: Guaranteed execution Cons: Might sell at worse price during volatile moves
3. Trailing Stop Loss
Stop loss that moves UP with stock price.
Example:
Buy Price: ₹500
Trailing Stop: 5%
Day 1: Stock at ₹500, Stop at ₹475
Day 5: Stock rises to ₹550, Stop moves to ₹522.50
Day 10: Stock rises to ₹600, Stop at ₹570
Day 15: Stock drops to ₹570, ORDER TRIGGERS
Result: Bought at ₹500, Sold at ₹570
Profit: ₹70 per share (14%)
Why It’s Powerful: Protects profits while letting winners run.
4. Bracket Order (BO)
Three orders in one:
- Buy order
- Stop loss
- Target (take profit)
Example:
Buy: ₹500
Stop Loss: ₹485 (3% loss)
Target: ₹530 (6% profit)
Risk-Reward: 1:2
When either stop loss or target is hit, the other order is cancelled.
Where to Place Your Stop Loss
Method 1: Percentage-Based
Set stop loss at fixed percentage below entry.
| Trading Style | Typical Stop Loss |
|---|---|
| Intraday | 0.5% - 1.5% |
| Swing Trading | 3% - 8% |
| Positional | 8% - 15% |
| Long-term Investing | 15% - 25% |
Method 2: Technical Levels
Place stop loss at technical support/resistance levels.
Better approach than arbitrary percentages.
Example:
Entry: ₹520
Support Level: ₹490 (previous low)
Stop Loss: ₹485 (below support with buffer)
Method 3: ATR-Based (Average True Range)
ATR measures stock’s typical volatility.
Stop Loss = Entry - (ATR × Multiplier)
Example:
Entry: ₹500
ATR(14): ₹10
Multiplier: 2
Stop Loss: ₹500 - (₹10 × 2) = ₹480
This accounts for each stock’s natural volatility.
Method 4: Moving Average
Use moving averages as dynamic stop loss.
Example:
- Buy when price above 20 EMA
- Sell when price closes below 20 EMA
Stop Loss Placement Examples
Stock: Reliance Industries
Scenario: Bought at ₹2,450 for swing trade
Technical Analysis:
- Recent support: ₹2,380
- Previous swing low: ₹2,350
- 20-day EMA: ₹2,400
Stop Loss Options:
- Percentage (5%): ₹2,327
- Below Support: ₹2,340
- Below 20 EMA: ₹2,390
Best Choice: Below support (₹2,340) – it’s based on actual market structure.
Stock: Infosys
Scenario: Intraday buy at ₹1,550
Technical Analysis:
- Day’s low: ₹1,535
- Opening range low: ₹1,540
- VWAP: ₹1,545
Stop Loss Options:
- Percentage (1%): ₹1,534
- Below day low: ₹1,532
- Below VWAP: ₹1,543
Best Choice: Below day low (₹1,532) – meaningful technical level.
Position Sizing with Stop Loss
The 2% Rule
Never risk more than 2% of your capital on a single trade.
Calculation:
Capital: ₹5,00,000
Risk per Trade: 2% = ₹10,000
Entry: ₹500
Stop Loss: ₹480
Per Share Risk: ₹20
Position Size = Total Risk / Per Share Risk
Position Size = ₹10,000 / ₹20 = 500 shares
Maximum Position: 500 shares × ₹500 = ₹2,50,000
Quick Position Sizing Table
| Capital | Max Risk (2%) | ₹10 Stop | ₹20 Stop | ₹50 Stop |
|---|---|---|---|---|
| ₹1,00,000 | ₹2,000 | 200 shares | 100 shares | 40 shares |
| ₹2,50,000 | ₹5,000 | 500 shares | 250 shares | 100 shares |
| ₹5,00,000 | ₹10,000 | 1,000 shares | 500 shares | 200 shares |
Common Stop Loss Mistakes
Mistake 1: Stop Too Tight
Problem: Stop hit by normal volatility Example: Stock moves 2% daily, you set 1% stop loss = guaranteed stop out
Solution: Study the stock’s average daily range (ATR) and set stop beyond it.
Mistake 2: Stop Too Wide
Problem: Losses become too large before stop triggers Example: 20% stop loss on ₹5 lakh position = ₹1 lakh loss
Solution: If required stop loss is too wide, reduce position size.
Mistake 3: Moving Stop Loss Down
Problem: “Let me give it more room” syndrome
Example:
- Original stop: ₹480
- Stock at ₹485, you move stop to ₹470
- Stock at ₹475, you move stop to ₹460
- Stock crashes to ₹400
- You never sold
Solution: Only move stop loss UP (to lock profits), never down.
Mistake 4: No Stop Loss at All
“I’ll watch the screen and exit manually.”
Reality:
- You’ll hope when you should sell
- You’ll be in a meeting when crash happens
- Emotions will override logic
Solution: Always place stop loss immediately after entry.
Mistake 5: Stop Loss at Round Numbers
Problem: Everyone places stops at ₹100, ₹500, ₹1,000. Market makers hunt these levels.
Example: Stock at ₹510, everyone’s stop at ₹500. Stock drops to ₹498, triggers all stops, then bounces to ₹520.
Solution: Place stop at odd numbers: ₹497 instead of ₹500.
Stop Loss for Investors (Not Just Traders)
“I’m a long-term investor. I don’t need stop losses.”
Counter-argument: Yes Bank was ₹400 in 2018. It’s ₹15 today (96% loss).
Time-Based Stop Loss
If your investment thesis doesn’t play out in expected time, exit.
Example:
- Thesis: “Company will grow 30% this year”
- Reality: No growth after 12 months
- Action: Exit regardless of price
Thesis-Based Stop Loss
Exit when your fundamental thesis breaks.
Examples:
- CEO resigns unexpectedly → Exit
- Competitor launches superior product → Reassess
- Major customer cancels contract → Exit
- Governance issues emerge → Exit immediately
Mental Stop Loss (For Investors)
If you can’t place actual stop loss (tax reasons), set mental thresholds:
“If this stock falls 25% below my purchase price, I will re-evaluate and likely sell.”
Stop Loss in Indian Market: Practical Considerations
Gap Downs
Indian market opens at 9:15 AM. Overnight news can cause “gap downs” – stock opens much lower than previous close.
Problem: Your stop loss might not trigger at your price.
Example:
- Yesterday close: ₹500
- Your stop: ₹480
- Today opens: ₹450 (bad news overnight)
- Your stop triggers at ₹450, not ₹480
Solution: Use SL-M (market) orders during volatile times.
Illiquid Stocks
In low-volume stocks, stop losses can execute at terrible prices.
Example:
- Stop loss: ₹100
- Only buyer at ₹85
- Your order executes at ₹85
Solution: Avoid stop losses in illiquid stocks. Exit manually.
Intraday vs Delivery Stop Loss
Intraday: Stop loss remains active only for the day Delivery: You need to place stop loss fresh each day (GTT orders help)
GTT Orders (Good Till Triggered)
- Place stop loss that remains active until triggered
- Available on Zerodha, Groww, etc.
- Doesn’t require daily re-entry
Setting Stop Loss on Zerodha Kite
For Intraday Trade (SL-L Order)
- Select stock, click “Sell”
- Change order type to “SL”
- Enter:
- Trigger Price: ₹480 (when to activate)
- Price: ₹475 (limit price)
- Quantity: Your shares
- Select “Intraday”
- Click “Sell”
For Delivery Trade (GTT Order)
- Go to Holdings
- Click on the stock
- Click “GTT”
- Set trigger price and limit price
- Order remains active until triggered or cancelled
Advanced: Combining Stop Loss with Targets
The Risk-Reward Framework
Minimum acceptable: 1:2 (Risk ₹1 to make ₹2)
Example:
Entry: ₹500
Stop Loss: ₹485 (Risk: ₹15)
Target: ₹530 (Reward: ₹30)
Risk-Reward: 1:2
Multiple Targets with Trailing Stop
Entry: ₹500 (1,000 shares)
Stop Loss: ₹480
Target 1: ₹520 – Sell 300 shares, move stop to ₹505
Target 2: ₹540 – Sell 300 shares, move stop to ₹525
Target 3: Trail remaining 400 shares with 5% trailing stop
Stop Loss Psychology
The Fear of Being Stopped Out
“But what if I get stopped out and stock recovers?”
Reality: This WILL happen sometimes. It’s the cost of protection.
Think of it like insurance: You don’t regret car insurance when you don’t have an accident.
Track Your Stop Outs
Maintain a log:
- How many times was stop hit?
- How many of those would have recovered?
- How many would have crashed further?
Most traders find the protection far outweighs the false stops.
Risk Disclaimer
Stop loss orders do not guarantee execution at your specified price, especially during high volatility or gap movements. Trading involves risk of loss. This content is educational only. Consult a SEBI-registered advisor before trading.
Summary
Stop loss is your seatbelt in the market:
- Always wear it – No trade without stop loss
- Place it at meaningful levels – Technical support, not arbitrary %
- Size positions accordingly – Risk max 2% per trade
- Never move it down – Only up to lock profits
- Accept stop outs – It’s protection, not failure
The market will continue tomorrow. Your capital must too.
Social Media Posts
LinkedIn: “Lost ₹50,000 on a stock. Feels bad, right? But here’s the thing – my stop loss saved me from a ₹2 lakh loss. The stock eventually fell 80%. Stop losses don’t just cut losses – they save trading careers. Always. Use. Stop. Loss. 🛡️ #Trading #RiskManagement”
Twitter/X: “Stop Loss Rules: 1️⃣ Place it IMMEDIATELY after entry 2️⃣ At technical level, not random % 3️⃣ Never move it down 4️⃣ 2% max risk per trade 5️⃣ Accept stop outs as cost of protection
Your capital > Your ego. #StockMarket #TradingTips”
Instagram: “Me before learning about stop loss: ‘I’ll exit when needed’
Me after a 60% loss: ‘Why didn’t I set a stop loss?! 😭’
Stop Loss = Market’s seatbelt • Set it at entry • Below support levels • Max 2% capital risk
Learn from my mistake! #TradingMistakes #StopLoss”