Setting a stop loss and target

Setting a stop loss and target are two important risk management strategies for investors in the stock market. Here's how to set them using a simple example:

Suppose you've invested in a stock called XYZ Ltd. at a price of Rs. 100 per share, and you want to set a stop loss and target for your investment.

Stop Loss:

A stop loss is an order to sell a stock if the price falls below a certain level. This is a way to limit your losses if the stock starts to decline. To set a stop loss for your investment in XYZ Ltd., you might choose a level that's 10% below your purchase price, or Rs. 90 per share. You would then place a stop loss order with your broker for this price.

Target:

A target is a price level at which you want to sell your stock to lock in profits. This is a way to take advantage of a stock's upward momentum and avoid getting too greedy. To set a target for your investment in XYZ Ltd., you might choose a level that's 20% above your purchase price, or Rs. 120 per share. You would then place a sell order with your broker for this price.

So, in this example, you would have set a stop loss at Rs. 90 per share and a target at Rs. 120 per share. If the stock price falls to Rs. 90 or below, your broker would automatically sell your shares to limit your losses. If the stock price rises to Rs. 120 or above, your broker would automatically sell your shares to lock in your profits.

It's important to note that setting stop loss and target levels can help manage your risk, but there is no guarantee that your orders will be executed at the exact price you set. The stock market can be volatile, and prices can fluctuate quickly, so it's important to monitor your investments regularly and adjust your stop loss and target levels as needed to align with your investment goals and risk tolerance.