In trading it is important to maintain stop loss and target efficiently because each one is important in its part. From word you can understand that it stops your loss. It is very important to have proper target prices and stop losses set before you purchase a share.
Stop loss is a buy or sell order which gets triggered automatically, once the stock reaches a particular price. The focus here is to limit the loss on a secured position. Stop-loss is used to minimize the loss of a trader.
Assume that you have bought a share at Rs 1000 and you have decided to accept only Rs 50 loss so place a stop loss at Rs 950, so when this price will reach your share will be sold in market. Suppose the price goes more down towards Rs 900 then you do not have to face more loss as your share is already being sold at Rs 950. For a Sell, the limit price must be less than or equal to the trigger price. If for a stop loss order to buy, the trigger price is 930 the limit price is 950 and the market price is 900, then this order will be released into the system once when the market price reaches or exceeds 930.
Let’s analyze the another example, Suppose you have bought a share at Rs 10 and you have decided to accept only Rs 2 loss so place a stop loss at Rs 8, so when this price will come your share will be sold in market. Suppose the price goes more down towards Rs 8 then you do not have to face more lose as your share is already being sold at Rs 8.
If you are wish to having your trading is in a right peak so you have to put the target price efficiently but all the time it is not possible to hit the target point correctly it is all about the market movement. But our responsibility to put the target price in correct time. In case of target, what you need to learn is that you have to take profits of 1:2, risk: reward or greater when they are available. Target price means you decide a price above your buying to get profit. If you have bought at Rs 100, you may set target price at Rs 105 or 110 or any price which you think that share will be hit. After placing stop loss then you have to put the target values.
Another example is, Let us assume that you bought 100 shares of a particular equity at Rs 100. This is the current market price. Now you have a good approach for the company and expect the price of the share is going up to Rs 200.This is the target point.
The balance of stop loss and target is in your hands. You have to put those in right time and with a correct point. The targets and stop loss are the back bone of the trading. So please keep in mind while trading.
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