How does a stop loss trigger work?

dominicsp · #1 3rd August 2006, 05:44 PM

Dear All,
I'm new to trading and I was wondering if someone could help me understand this concept of stop loss trigger.

Today I bought Inox leisure at a limit price of 126.50 with stop loss of 123. The price of the stock is 121 now. What was the stop loss suppose to do, sell my stocks at 123 or send me some kinda alert??

I had assumed that the broker would sell it at the stop loss defined by me

What do I do if I would like to buy a stock say at 100 and would like to sell it either when I get a 20% margin at 120 or I can bear a loss of 5% so 95.
Regards
Dominic

tomemmanuel · #2 3rd August 2006, 07:27 PM

stoploss is used to "stop loss" -to cut the loses.you can use a pivot calculator for simple stop loss calculation for delivery based trading and intraday stop loss depends on how much you are ready to lose - imean the maximum amount you are ready to lose- it also depends on the price movements of the scrip for that particular day

in your case - if you asked the broker to put a stop loss at 123 =it means that the broker placed and order for selling the stock at one condition -if it breaches a tigger price. so for a stop loss sell order for 123 the trigger will be slightly higher. lets say that the stock is quoting at 125.you place a stop loss sell order at 123 with a trigger price of say 123.25.when the price reaches 123.25 or below the stop loss sell order get activated or triggered.the order will be placed as a sell order for 123.but if the price starts moving up say from 123.10 to 124 the order wont be excecuted.

Trader07 · #3 3rd August 2006, 07:33 PM

When you placed a buy order at stop loss trigger 123 and limit 126.50, the system would have bought INOX shares for you when the price hit 123.

After buying the shares, if you wanted to stop loss at 123 , then you should have placed a separate SELL order specifying stop loss trigger at 123 and limit price slightly below @ 122.50 or 122.

Similarly if you buy shares at 100 and wanted a risk/reward of 5% and 20%
then you would have place 2 orders viz.

Sell xxx Stop loss trigger 95 Limit price 94
Sell xxx Stop loss trigger 120 Llimit price 121

You would have to place these orders every morning till either of the stops are hit. When either one of the orders gets executed , then the other one will have to be cancelled.

Also, please note that stop orders aren't very reliable as the market can "jump" over your price leaving your order pending.

Hope this clarifies.

Quote:

Originally Posted by dominicsp

Dear All,
I'm new to trading and I was wondering if someone could help me understand this concept of stop loss trigger.

Today I bought Inox leisure at a limit price of 126.50 with stop loss of 123. The price of the stock is 121 now. What was the stop loss suppose to do, sell my stocks at 123 or send me some kinda alert??

I had assumed that the broker would sell it at the stop loss defined by me

What do I do if I would like to buy a stock say at 100 and would like to sell it either when I get a 20% margin at 120 or I can bear a loss of 5% so 95.
Regards
Dominic

dominicsp · #4 3rd August 2006, 08:19 PM

Hey TomEmmanuel and Trader07,
I had got the concept completely wrong, I thought a stoploss would automatically sell my stock at that price. Thanks for the clarification. Sharekhan call centre took some 15-20 mins to explain this and got me confused all the more

Regards
Dominic

Agilent · #5 3rd August 2006, 11:20 PM

Quote:

Originally Posted by Trader07

When you placed a buy order at stop loss trigger 123 and limit 126.50, the system would have bought INOX shares for you when the price hit 123.

After buying the shares, if you wanted to stop loss at 123 , then you should have placed a separate SELL order specifying stop loss trigger at 123 and limit price slightly below @ 122.50 or 122.

Similarly if you buy shares at 100 and wanted a risk/reward of 5% and 20%
then you would have place 2 orders viz.

Sell xxx Stop loss trigger 95 Limit price 94
Sell xxx Stop loss trigger 120 Llimit price 121

You would have to place these orders every morning till either of the stops are hit. When either one of the orders gets executed , then the other one will have to be cancelled.

Also, please note that stop orders aren't very reliable as the market can "jump" over your price leaving your order pending.

Hope this clarifies.

Trader
I am rather confused.... can u cite an example from some trade done by you

cemcompusoft · #6 3rd August 2006, 11:58 PM

Quote:

Originally Posted by Trader07

.
.
Also, please note that stop orders aren't very reliable as the market can "jump" over your price leaving your order pending.
.
.
.

To avoid this put 'market price' in order instead of any 'firm' price....whenever SL trigger trade will execute at market price even if there is 'jump'.

Trader07 · #7 4th August 2006, 10:39 AM

Can't remember my past trades.

But to give an example, if I want to buy 50 shares of Reliance when the price hits 1015 and I don't want to pay more than 1020 then I would place my order as follows

Buy 50 // Reliance // Stop loss trigger 1015 // Limit 1020

Quote:

Originally Posted by Agilent

Trader
I am rather confused.... can u cite an example from some trade done by you

Trader07 · #8 4th August 2006, 10:40 AM

Yes, but the order would remain pending if the market jumps over the SL Trigger price.

Quote:

Originally Posted by cemcompusoft

To avoid this put 'market price' in order instead of any 'firm' price....whenever SL trigger trade will execute at market price even if there is 'jump'.

Agilent · #9 4th August 2006, 12:30 PM

Quote:

Originally Posted by Trader07

Can't remember my past trades.

But to give an example, if I want to buy 50 shares of Reliance when the price hits 1015 and I don't want to pay more than 1020 then I would place my order as follows

Buy 50 // Reliance // Stop loss trigger 1015 // Limit 1020

I'm still confused at your terminology. If your target Purchase price is 1015, then why do you call it stop loss ?

This is not the generally understood meaning of stop loss, I'm afraid

AGILENT

avinash · #10 4th August 2006, 01:02 PM

Hi Agilent,

Think Trader 07 means a buy stop as opposed to a stop loss.....

Avinash

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