InvestorQ : Should the stop loss be set based on the risk that I can afford to take?
Dawn Cherian made post

Should the stop loss be set based on the risk that I can afford to take?

Answer
user profile image
Arya Nanda answered.
2 years ago


One of the simplest and intuitive ways of setting the stop loss is through the affordability clause. Let us say, you set a rule that you will not stake more than 0.5% of your capital in a single position. Your stop loss should be set accordingly. As mentioned earlier, the most important purpose of a stop loss is to ensure that your capital is protected; that is how much you can afford to lose on a trade. This decision can also be on a more stock-specific basis. You can set a longer stop loss for a volatile stock and a shorter stop loss for a less stock like NTPC. However, the driving force should still be your affordability that is what you are willing to lose and what you can afford to lose.