How to use/modify Stop Loss in LONG/SHORT positions:
Stop Loss limit is an important trading strategy to minimize the risk in trading and can prevent losses. You specify the stop loss limit (also called stop loss trigger price) amount while trading and it can be used either for long or short positions.
Stop Loss is the amount you can lose if your prediction is not right and you can use this stop loss in day trading or carried over calls or positional calls. To prevent your losses in profit booking, you will be modifying this stop loss limit, which is called trailing stop loss.
It is not mandatory that a commodity on a certain day will be always in the upward trend or in downward trend. A commodity which has touched day's high will also touch day's low and vice versa.
For day trading the stop loss amount given by commodity tipping agency for a product (GOLD, SILVER, TURMERIC etc) traded in MCX/NCDEX ranges between Rs.3,000 and Rs.5,000. You can get mcx/ncdex free trading tips from those agencies and understand the stop loss amount for each product. While trading, if you are not sure about that mcx/ncdex trading calls, then you can reduce that stop loss amount or don't trade at all.
Without modifying Commodity Stop Loss:
Bought Price (Cost Price): 100;
Stop Loss: 95;
Sell Order (Target1 = 110; Target2 = 120; Target3 = 130)
- Place a buy order to buy a commodity (100).
- Confirm whether it has been executed. i.e. executed means you have bought the commodity.
- Place a "sell order with stop loss" and with your expected target. (Target: 110; Stop Loss: 95)
- Based on the market movement, the last traded price may touch your stop loss price or taget price. If Commodity's Last Traded Price = 95 then your "sell order with stop loss" is executed (triggered) and you lose money.
- If Commodity's Last Traded Price = 110 then "sell order with stop loss" is executed and you get profits.
Modifying Commodity Stop Loss:
In the above mentioned example, your booked profits at Target1 (110) and got out. You were not able to book profits with Target2 or Target3.
There is no guarantee that commodity price will reach 110. The commodity price would have reached 109 and again it would have dropped to 95 also.
To overcome these difficulties, you have to modify your stop loss.
- When commodity price touches Target1 (110), modify your stop loss from 95 to Cost Price (100).
- When commodity price touches Target2 (120), modify your stop loss from 100 (Cost Price) to Target1 (110).
- When commodity price touches Target3 (130), book profits and exit.
By modifying stop loss, you get the rewards that you want.
Steps to trade SHORT POSITIONS:
Stop Loss and squaring order are valid for that day only. Similarly, you can do for SHORT POSITIONS.
Trading Strategies: Headers in Online Trading Screen