For any trader, setting stop losses forms a part of the cardinal Bible of trading. What exactly is a stop loss? Irrespective of whether you are trading long (buying) or trading short (selling), a good trader always puts a stop loss and trades. A stop loss is the worst case scenario for your trading position. Let us understand stop loss with 2 different trading positions…
Assume that you have bought 100 shares of Infosys at Rs.940. You are willing to take a maximum risk of Rs.10, then your stop loss should be placed at Rs.930. if Infosys touches Rs.930, you just book the loss and terminate the position. Alternatively, assume that you have sold 50 TCS shares at Rs.2345 and are willing to take a maximum risk of Rs.20. Since this is a short position, you can place the stop loss at Rs.2365. At that point, you book the loss and terminate your position.