Stop Loss

It takes emotion out of the sell decision. The exit happens automatically.

A stop loss set at 10% below your buy price means you lose at most 10% on that trade.

On Indian exchanges, a regular stop-loss order expires at the end of the trading day. Use GTT for longer protection.

There are two types of stop-loss orders on NSE and BSE: the SL order (Stop Loss Limit) and the SL-M order (Stop Loss Market). An SL order converts to a limit order once the trigger price is hit, so it might not execute if the stock gaps down past your limit. An SL-M order converts to a market order, guaranteeing execution but at whatever price is available. For volatile stocks, SL-M is safer because it ensures you actually exit.

Setting the right stop-loss level is an art. Too tight (say 3% below your buy price) and normal intraday volatility will trigger it, kicking you out of a good trade. Too wide (say 25%) and the stop loss does not protect you meaningfully. For large-cap Indian stocks like Reliance or HDFC Bank, a 7-10% stop loss is common. For volatile mid-caps and small-caps, 12-15% gives the stock room to breathe.

One common mistake Indian retail investors make is moving their stop loss further away when the stock falls toward it. This defeats the entire purpose. The stop loss should be set based on your analysis before you enter the trade, and once set, it should not be widened. Zerodha's GTT feature helps enforce this discipline because the trigger stays active even when you are not watching.

For long-term investors, a trailing stop loss is a powerful technique. Instead of a fixed price, you set the stop loss at a percentage below the stock's highest price since you bought it. If you buy ITC at ₹400 and it rises to ₹500, a 10% trailing stop loss moves up to ₹450. If ITC then falls to ₹450, you sell, locking in ₹50 profit per share instead of waiting for it to fall back to your original ₹400 entry.