A practical execution guide to using stop-loss orders correctly — to manage risk, not to predict markets.
Stop-loss orders are one of the most misunderstood tools in investing and trading.
Used correctly, they protect capital.
Used blindly, they create unnecessary exits.
This guide explains what stop loss is, when to use it, and exactly how to place it on Indian trading platforms.
What Is a Stop-Loss Order?
A stop-loss order is:
- A predefined price at which your position is automatically exited
- A risk-management tool, not a profit-booking tool
👉 Stop loss decides how much you can lose, not how much you will earn.
When Should You Use a Stop Loss?
Stop loss is useful when:
- You are trading short-term
- You cannot monitor prices continuously
- You have a clear entry and exit plan
Stop loss is less critical when:
- You are investing long-term in quality businesses
- Your decisions are based on fundamentals
👉 Context matters more than rules.
Types of Stop-Loss Orders in India
Regular Stop-Loss (SL)
- Trigger price activates a market order
- Execution happens at market price after trigger
👉 Simple but may have price slippage.
Stop-Loss Limit (SL-L)
- Trigger price activates a limit order
- Better price control
- May not execute if price moves too fast
👉 Preferred by disciplined traders.
Trailing Stop-Loss
- Stop loss moves automatically as price moves in your favor
- Protects profits while allowing upside
👉 Useful in trending markets.
Step-by-Step: How to Place a Stop-Loss Order
1 Identify Your Entry Price
Know:
- Why you are entering the trade
- At what price the trade idea becomes invalid
👉 Stop loss starts with logic, not percentages.
2 Decide Your Stop-Loss Level
Common approaches:
- Below recent support
- Below swing low
- Based on percentage risk
👉 Avoid placing stop loss at obvious round numbers.
3 Choose Order Type
SL (Market)
- Higher chance of execution
- Less price control
SL-Limit
- Better price control
- Risk of non-execution
👉 Choose based on volatility and liquidity.
4 Place the Stop-Loss Order
On your trading platform:
- Select the stock
- Choose product type (Intraday or Delivery)
- Select SL or SL-Limit
- Enter trigger price
- Enter limit price (if SL-Limit)
- Confirm order
👉 Always verify trigger and limit prices carefully.
5 Monitor and Adjust (If Required)
You may:
- Trail the stop loss upward
- Modify if the trade structure changes
👉 Do not widen stop loss to avoid loss.
Stop Loss in Intraday vs Delivery
Intraday
- Stop loss is essential
- Positions are squared off same day
Delivery
- Stop loss is optional
- Fundamentals matter more than price movement
👉 Long-term investors should not overuse stop losses.
Common Stop-Loss Mistakes
- Placing stop loss too close
- Using the same stop loss for all stocks
- Removing stop loss after placing it
- Treating stop loss as a prediction tool
👉 Stop loss protects discipline, not ego.
How Much Should You Risk Per Trade?
A commonly followed rule:
- Risk only a small portion of capital per trade
This ensures:
- One bad trade does not damage the portfolio
- Emotional control remains intact
👉 Survival matters more than returns.
Stop Loss vs Target: Which Comes First?
Always define:
- Stop loss
- Risk
- Position size
- Target
👉 If stop loss is unclear, skip the trade.
Do Long-Term Investors Need Stop Loss?
Not always.
Long-term investors should focus on:
- Business quality
- Valuation
- Long-term growth
👉 Exit decisions should be based on fundamentals, not daily price noise.
What to Read Next
👉 Risk Management for Investors
👉 Position Sizing Explained
👉 How to Buy Stocks in India
👉 Tools and Calculators
Final Thought
Stop-loss orders do not prevent losses.
They prevent large losses.
Used correctly, they:
- Protect capital
- Reduce emotional decisions
- Improve long-term consistency
👉 A trader without a stop loss is not confident — they are exposed.