In your new video series, BL Today’s Pick – Stocks To Buy Or Sell that was recently launched, you mention revised stop-loss. What does it mean?
Ashwin Kumar Nayak
Stop-loss revision is a way of risk management. Say, you buy a stock at ₹100 with a view that the price could go up to ₹150. Assume that you keep a stop-loss initially at ₹85.
If the stock price goes up to ₹130, you stand to make a profit of ₹30. What if an unexpected negative event triggers a sharp sell-off in the market? What if in this case, your stock price falls all the way down from ₹130 to hit your initial stop-loss at ₹85?
We use the concept of stop-loss revision to protect profits from unexpected events, . Once the stock price moves up to ₹130, you can lock in some profit by moving your stop-loss from ₹85 to, say, ₹110 or ₹115. Again, when the price moves up to ₹140 or ₹145 (closer to your target), you can lock in more profit by revising/ moving your stop-loss from ₹110/ ₹115 to say ₹130/ ₹135.
Keeping a stop-loss and revising it is not the key. What is more important is to adhere to the stop-loss and exit when those levels are seen. Most market participants have a stop-loss in mind, but fail to follow or execute that. This can result in huge loss sometimes.
There could be instances when the price comes down to hit your revised stop-loss and then move up to the desired target level. Do not worry about that. There is always another trade to do.
Having a stop-loss and strictly adhering to it will help minimise the loss and also develop discipline over the long term.
Hope this helps.
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