FOR PLACING A STOPLOSS ORDER FIRST YOU SHOULD EITHER BUY OR SELL A STOCK.
FOR EXAMPLE, YOU BUY 100 SHARES OF A @ Rs 175/- . THEN PLACE A SELL ORDER INDICATING QTY AS 100 AND IN STOPLOSS COLUMN YOU INDICATE STOPLOSS PRICE AS Rs 170 /- (FOR EXAMPLE). IF THE PRICES COME DOWN TO Rs 170/-, then SL gets triggered and your order is executed and you will incur a loss of Rs 500/-. Vice versa when you go for short.
Trailing stoploss: In the above case, if the stock goes upt beyond Rs 180/- and u expect the stock may go up further and at the same time, you do not want to loose your profit of Rs 500 /-, then modify your stop loss to Rs 180/-. Even if the stock goes up or down your profit of Rs 500/- is assured.
See the article below on stop loss / trailing stoploss
One interesting aspect in Stoploss order is trailing stoploss.
Stop Loss Orders and Trailing Stops:
All stock purchases are, of course, made in the expectation that the stock price will go higher. Frequently, however, the market moves against a trader, creating an unexpected loss when the position is closed out. The use of stop loss orders and trailing stops is tools that greatly help traders to minimize losses (or lock in profits), if the market suddenly moves against a position that remains open. All day traders should use these tools.
Stop Loss Orders
A "stop loss order" is an order to sell a stock at a price below the current market price.
For example, suppose that you have just bought 1000 shares of xyz at Rs. 50.00. You decide that you only want to risk Rs. 5.00 per share on this transaction. Accordingly, you immediately place a stop loss order at Rs. 45.00.
This means that if the price of XYZ should drop to Rs. 45.00, your broker will sell your 1000 shares at a market price of (or close to) Rs. 45.00. The use of a stop loss order will therefore pre-determine the maximum loss a trader will incur.
2
There are many views on where traders should set their stop loss price levels. A common and simple approach is to set your stop loss price between 10% to 20% below the price you paid for the stock. In the above example, the stop loss was placed Rs. 5.00 or 10% below the XYZ stock price of Rs. 50.00.
Trailing Stops ( INTERESTING ??????)
In addition to placing stop loss orders to limit your losses, you can also use the technique of "trailing stops" as a means of locking in your profits should the stock price increase.
Referring to the example above, assume that the share price of XYZ increased to Rs. 60.00. You now have an unrealized gain of Rs. 10.00 per share. You believe that the share price will go even higher so you decide not to sell the shares at his time. However, at the same time, you wish to protect or lock in a portion of your unrealized profit on these shares in the event that the share price does in fact move back down. To do this,
you would cancel the existing stop loss order of Rs. 45.00 and place a new stop loss order at, say, Rs. 55.00. If the share price declines to Rs. 55.00 your position will be sold out at a gain of Rs. 5.00 per share. If the stock continues to go up, you profit even more and may decide to place another stop loss order at a higher price to lock in further gains.
You can continue to "trail stop" up as the price rises as many times as you wish.
Two final points about stop orders and trailing stops.
First, the stop price should always be sufficiently below the current market stock price to compensate for the normal intra-day price volatility of the particular stock. Otherwise, you will find that your positions are frequently and unexpectedly closed out. Secondly, the use of trailing stops requires frequent monitoring of the stock price, as it is up to the trader to adjust the stop loss upward as the price of the stock increases.
