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How to apply stop loss — types, strategy, and common mistakes. Risk management complete guide with real examples on Indian stocks.
Published by The Retail Trader · AUG 18, 2026 · Features
How to apply stop loss — types, strategy, and common mistakes. Risk management complete guide with real examples on Indian stocks.
Stop loss is a pre-defined price level where you close your trade if the market goes against you. This is basically an insurance — you decide in advance that "if the price goes to this level, I will take the main exit, without thinking."
Why should stop loss be applied?:
• Capital protection — without SL one bad trade can wipe out your capital
• Emotion control — SL is already set, so there is no need to panic sell.
• Discipline – discipline in trading = survival
• Position sizing — From SL distance you calculate how many shares to buy.
Sach:
• 90% traders fail because they don't use stop losses
• Professional traders always use stop loss
• "Main hits SL but the market always hits SL and goes back" — this is an excuse, not a discipline.
On TRT: Set alerts on charting terminal (Pro: 500, Premium: 2000). Price alert = notification, not auto-SL. Auto-SL has to be set on the broker platform.
Type 1: Fixed Stop Loss (Percentage-based):
• Set X% lower/upper SL from entry price
• Example: Buy at ₹100, SL at ₹95 (5% SL)
• Simple but not adaptive to volatility
Type 2: Technical Stop Loss (Chart-based):
• Set SL at support/resistance level
• Example: Buy at support ₹100, SL below support at ₹94
• More logical, based on chart structure
Type 3: ATR-Based Stop Loss (Volatility-adjusted):
• Decide SL distance from ATR (Average True Range)
• Example: ATR = ₹4, SL = Entry – (1.5 × ATR) = Entry – ₹6
• Best method: adjusts to market volatility
Type 4: Trailing Stop Loss:
• SL moves with price (in profit)
• Example: Buy at ₹100, SL ₹95. Price goes to ₹110, SL moves to ₹105. Price ₹115, SL ₹110.
• Supertrend is a trailing SL indicator!
Type 5: Time-Based Stop Loss:
• If trade does not give profit in X time, exit
• Example: Intraday trade not green in 1 hour → exit
• Useful for intraday when time is limited
Method 1: Below Support
Keep these three points in mind:
• Buy at: ₹100 (at support)
• SL at: ₹94 (below support, 6% risk)
• Target: ₹112 (12% reward, 1:2 R/R)
Method 2: ATR-Based
Keep these four points in mind:
• Buy at: ₹100
• ATR (14): ₹3
• SL at: ₹100 - (1.5 × 3) = ₹95.50
• Target: ₹100 + (3 × 3) = ₹109 (1:2 R/R)
Method 3: Below Recent Swing Low
Keep these four points in mind:
• Buy at: ₹100
• Recent swing low: ₹96
• SL at: ₹95 (below swing low, 5% risk)
• Target: ₹110 (10% reward, 1:2 R/R)
Method 1: Above Resistance
Keep these three points in mind:
• Sell at: ₹100 (at resistance)
• SL at: ₹106 (above resistance, 6% risk)
• Target: ₹88 (12% reward, 1:2 R/R)
Method 2: ATR-Based
Keep these four points in mind:
• Sell at: ₹100
• ATR (14): ₹3
• SL at: ₹100 + (1.5 × 3) = ₹104.50
• Target: ₹100 - (3 × 3) = ₹91 (1:2 R/R)
The 2% Rule:
• Risk per trade = max 2% of total capital
• ₹1,00,000 capital → max risk = ₹2,000
Position Size Calculation:
• Position Size = Max Risk / (Entry - Stop Loss)
• Example:
• Capital: ₹1,00,000
• Max risk: ₹2,000 (2%)
• Buy at: ₹500
• SL at: ₹480 (₹20 risk per share)
• Position size = ₹2,000 / ₹20 = 100 shares
• Investment = 100 × ₹500 = ₹50,000
Different SL Distances → Different Position Sizes:
• ₹500 — SL: ₹490 (2%), Risk/Share: ₹10, Max Risk: ₹2,000, Position Size: 200 shares, Investment: ₹1,00,000
• ₹500 — SL: ₹480 (4%), Risk/Share: ₹20, Max Risk: ₹2,000, Position Size: 100 shares, Investment: ₹50,000
• ₹500 — SL: ₹470 (6%), Risk/Share: ₹30, Max Risk: ₹2,000, Position Size: 67 shares, Investment: ₹33,500
• ₹500 — SL: ₹460 (8%), Risk/Share: ₹40, Max Risk: ₹2,000, Position Size: 50 shares, Investment: ₹25,000
Key insight: Tighter SL = more shares but less room for noise. Wider SL = fewer shares but more breathing room.
Mistake 1: Applying SL but not following:
• "Market will hit SL and go back up, let's hold"
• Wrong. SL hit = exit. NO EXCEPTIONS.
• If market hits SL and goes back up, that's NORMAL. You can re-enter.
Mistake 2: Making SL Continuous Move:
• Buy at ₹100, SL ₹95
• Price drops to ₹96, you move SL to ₹93 (giving more room)
• Price drops to ₹94, you move SL to ₹90
• This is NOT risk management. This is denial.
• Set SL and forget. Do not move (except trailing).
Mistake 3: Round Number SL:
• Buy at ₹100, SL at ₹95 (round number)
• Problem: Everyone puts SL at round numbers → easy target for institutions
• Better: SL at ₹94.50 or ₹94.80 (just below round number)
Mistake 4: Same % SL on all Stocks:
• 5% SL for Reliance = ok (low volatility)
• 5% SL for Vodafone Idea = too tight (high volatility)
• Use ATR-based SL instead — adjusts to each stock's volatility
Mistake 5: Trade without SL in intraday:
• Intraday + leverage + no SL = GUARANTEED BLOW UP
• One bad day can wipe out months of profit
• SL is non-negotiable in intraday
Mental Stop Loss (Avoid):
• "SL is ₹95 in mental"
• Price hits ₹95 → you think "Let's wait a little more"
• Price hits ₹90 → "Now I'll have to wait for a recovery"
• Price hits ₹85 → account damaged
Real Stop Loss (Use This):
• Place actual SL order on Broker platform
• Price hits SL → auto-exit, no emotion involved
• Always use real SL, not mental SL
Broker SL Types:
• Market SL — when price hits SL, market order executes. Fast but slight slippage possible.
• Limit SL — when price hits SL, limit order at SL price. No slippage but might not execute in fast market.
• SL-M (Stop Loss Market) — triggers market order when SL price touched. Most common for intraday.
Depends on volatility. Use ATR: 1.5x ATR for swing, 1x ATR for intraday. Generally 3-6% for swing, 1-3% for intraday.
No. ~40-50% of trades will hit SL — that's normal. Win rate 50% with 1:2 R/R = profitable.
Use Supertrend indicator — it automatically gives trailing SL. Or manually: when price goes to 1R profit, move SL to entry (break-even).
Re-enter. Better to pay 2 brokerage than hold a losing trade. SL hit = trade was wrong. Re-enter the new setup.
Hey! 500 price alerts are available in TRT Pro. Price alert notification has been sent. Set it on Auto-SL broker. theretailtrader.org/charting
Try on TRT: theretailtrader.org/charting Pro (500 alerts + intraday): theretailtrader.org/pricing — ₹2,499/mo Telegram: @theretailtrader_in
Educational only. NOT investment advice. Trading involves risk of loss.
This article is for educational purposes only. It is not a buy or sell recommendation, a claim of guaranteed returns, or advisory guidance. Exchanges, SEBI and RBI change rules, rates and procedures from time to time, so verify every figure with your broker or an official source.