Stop loss is basically to protect the downside (both long and short). suppose you have bought 100nos reliance shares @1200 and expect it to reach 1500 in 3 months but at the same time you want to limt your loss to 30000 from this transation. in this case the maximum loss that you can tolerate is 30000 divided by 100 shares that come to 300 and hence you would like stop your loss at 1200-300=900. accordingly you will ask your broker to sell your shares it reaches 900 on the downside and 1500 on the upside. basically it means two things, one is you wanted to cap your loss at 300 at the same time you want to allow the stock to take a dip before it reaches your target and the second thing would be that you expect the stock to go further down once it reaches 900.lot of technical analyst use to predict the break point once it touches the upper break point the stock would expect to gain momentum and provide more upside and vice versa during the downside.
27 January 2010
i just i want to know how it is played in the Stock markt. becoz now a days i have seen market word frequently coming that stoploss @ this rate something so i want to know. and another thing i know pls any book that gives me complete knowledge about the market. u explain stopl loss further with some more example
28 January 2010
i presume that the stop loss option is built in the trading system which will trigger the buy or sell at the stop loss price once the condition is met. In the same example i have explained in my previous post, the selling will happen once the stock has reached 900 at the prevailing market rate.
I am not sure to recommend a book. I am sure that you can go ahead and buy any share market related book which will explain the basic concepts.
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