Regd. a volativity based stop loss

#1
Hi Experts,

I have recently started trading in Options and have understood the importance of Stop loss recently while I was going some paper trading. :)

My idea is to trade in Nifty options with a trailing stop loss. In paper trading I was giving a stop loss value of (current price - Rs 2) and it worked out pretty well.

Anyone have tried this and what is your suggestion about this?

Also is there any formula/method to calculate the Stop loss according to Daily Market volatility that is there in the NSE options data page. Doyou think this will work out better?
 
#2
hi

Your stop loss should be based upon nifty support and resistance level.For example if trade in nifty today for long position ur stop should be 5170-5150 level and for nifty shorts it should be around 5282.
 

AW10

Well-Known Member
#5
Hi Experts,

I have recently started trading in Options and have understood the importance of Stop loss recently while I was going some paper trading. :)

My idea is to trade in Nifty options with a trailing stop loss. In paper trading I was giving a stop loss value of (current price - Rs 2) and it worked out pretty well.

Anyone have tried this and what is your suggestion about this?

Also is there any formula/method to calculate the Stop loss according to Daily Market volatility that is there in the NSE options data page. Doyou think this will work out better?
Option pricing is not as straight forward as stock pricing hence this 2 rs funda may not work there. Ofcourse, this is one of the criteria of limiting your losses.
If you trade low liquidity options like stock options, then due to wide spread, your order may not get executed, or might get executed at much higher/lower price.

You should also use the technical levels of underlying to decide on when to cut the option position.
Also chk out my thread on "Low Risk option..." where I have described how to use option spread to manage your risk precisely without any stops and still create a trades with reward risk ratio of 2:1 or 3:1 very easily.

Happy Trading
 

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