How to Calculate Stop Loss in Intraday Trading

To calculate stop loss in intraday trading, use a set % below your buy price or place it near support levels where the price may likely reverse.
OPEN ACCOUNT
How to Calculate Stop Loss in Intraday Trading
OPEN ACCOUNT
3 mins
07-June-2025

A stop loss is a key risk management tool that helps traders and investors cap their losses. It involves placing an order with a broker to automatically sell a security once it drops to a specific price, known as the stop price. This strategy is particularly crucial in intraday trading, where all positions must be squared off within the day. Using a stop loss in such fast-paced markets enables timely exits from unfavourable trades and helps control risk effectively.

How does stop loss work?

Here is how a stop-loss order works:

  1. Setting the stop price: When an investor buys a stock, they can simultaneously place a stop-loss order with their broker. The stop price is the price at which the stop-loss order is triggered.
  2. Triggering the order: If the stock price falls to or below the stop price, the stop-loss order becomes a market order and is executed at the prevailing market price. If the stock is rising, the stop-loss order remains inactive.
  3. Limiting losses: The purpose of the stop-loss order is to limit potential losses. By having a predetermined exit point, investors aim to prevent significant losses in case the stock price moves adversely.
  4. Market volatility: In highly volatile markets, prices can change rapidly. A stop-loss order helps investors respond to such rapid price movements and take action to protect their capital.

Pro tip

Invest in equities, F&O, and upcoming IPOs effortlessly by opening a Demat account online. Enjoy a free subscription for the first year with Bajaj Broking.

demat

How to calculate stop loss?

Understanding how to calculate and implement a stop-loss order is crucial for effective risk management in the stock market. Let us break it down using an example:

1. Initial purchase:

  • You decide to buy 50 shares of a company at Rs. 200/share.

2. Setting the stop loss:

  • Concerned about potential losses, you set a stop-loss order at Rs. 180. This means that if the stock price falls to Rs. 180, your long position will be automatically squared off.

3. Scenario 1: Stock price moves up to Rs. 220:

  • Your analysis proves accurate as the stock price rises to Rs. 220.
  • Profit per share: Rs. 220 (selling price) - Rs. 200 (purchase price) = Rs. 20.
  • Total profit: Rs. 20/share × 50 shares = Rs. 1,000.

4. Scenario 2: Stock price dips to Rs. 180:

  • The stock price falls to Rs. 180, triggering your stop-loss order.
  • Maximum loss per share: Rs. 200 (purchase price) - Rs. 180 (stop-loss price) = Rs. 20.
  • Total loss: Rs. 20/share × 50 shares = Rs. 1,000.

Where to set my stop loss level?

Setting an appropriate stop-loss level is a critical aspect of risk management when trading in the Indian securities market. Here are three commonly used methods to determine where to set your stop-loss level:

  1. Calculate stop loss using the percentage method:
    The percentage method involves setting a stop-loss level as a percentage of the purchase price. This method allows traders to adapt their risk management strategy based on the volatility of the stock. A common practice is to set the stop-loss level between 1% to 3% below the purchase price. For example, if you buy a stock at Rs. 300 per share, a 2% stop loss would be triggered at Rs. 294, helping you limit potential losses while accommodating normal market fluctuations.
  2. Calculate stop loss using the support method:
    The support method involves identifying key support levels on a stock's price chart. Support levels are areas where the stock has historically had difficulty falling below. By setting the stop-loss just below a strong support level, traders aim to avoid significant losses in case the stock price breaks through that support. This method relies on technical analysis and chart patterns to make informed decisions about where to place the stop loss.
  3. Calculate stop loss using the moving averages method:
    The moving averages method involves using moving averages to determine the stop-loss level. Traders often use simple moving averages (SMA) or exponential moving averages (EMA) to smooth out price fluctuations and identify trends. A common approach is to set the stop-loss just below a key moving average, signalling a potential trend reversal. For instance, if a stock is trading above its 50-day SMA, setting the stop loss just below that level might be considered a prudent strategy.

Tips for setting effective stop loss

Setting a stop loss effectively is key to managing trading risk. Choose a method that aligns with your strategy, whether it’s based on price action, market volatility, or technical levels. Avoid placing stop losses too close to the entry price, as it may trigger unnecessary exits. Instead, assess market trends and historical support/resistance zones to place logical stop levels. This improves decision-making and protects your capital from unexpected market moves.

Calculate stop loss using the percentage method

The percentage method is one of the simplest ways to set a stop loss. Here, you decide on a specific percentage of the trade value—commonly 1% to 2%—that you are willing to risk. For example, if you buy a stock at Rs. 500 and choose a 2% stop loss, you would exit the trade if the price falls to Rs. 490. This method keeps your losses limited and consistent across trades.

Calculate stop loss using the support method

This approach involves placing the stop loss just below a key support level—the price point where a stock typically rebounds after falling. If the price breaks this level, it could signal a downtrend, justifying an exit. For instance, if a stock has consistently bounced back from Rs. 200, a stop loss at Rs. 198 can protect you if the support fails. This method suits traders who rely on price action and chart patterns.

Calculate stop loss using the moving averages method

The moving averages method uses technical indicators like the 50-day or 200-day moving average to place stop losses. If a stock trades above the average, the stop loss is set just below the average line. This strategy helps you ride trends while protecting against reversals. For example, if a stock is trending above its 50-day average, placing a stop slightly below it can help lock in profits while avoiding early exits.

Conclusion

Strategically setting your stop-loss level is a crucial step in managing risk and protecting your investment capital in the dynamic Indian securities market. Each method has its strengths and weaknesses, so it is advisable to experiment and find the approach that aligns best with your trading goals and risk tolerance.

Read other popular articles

Frequently asked questions

What is the formula for calculating stop-loss?

The stop-loss formula using the percentage method is:
Stop-Loss Price = Purchase Price – (Purchase Price × Stop-Loss %)
For example, if you buy a stock at Rs. 50 and set a 10% stop-loss, the stop-loss price would be Rs. 45. This helps limit your losses if the price drops.

What is the 2% rule in day trading?

The 2% rule means you should not risk more than 2% of your total trading capital on any single trade. For instance, if your capital is Rs. 50,000, your risk per trade should not exceed Rs. 1,000. This helps protect your portfolio from major losses.

What is the formula for intraday trading?

A basic formula for intraday trading is:
Intraday Resistance Level = High + (High – Low) × 0.67
This helps traders identify potential exit points for profit booking, using price movements within the same trading day.

What is the 1% rule for stop-loss?

The 1% rule suggests you should not risk more than 1% of your trading capital on a single trade. This strategy protects you from significant losses and encourages disciplined risk management by keeping potential losses minimal.

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-qualified limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Standard Disclaimer

Investments in the securities market are subject to market risk, read all related documents carefully before investing.

Research Disclaimer

Broking services offered by Bajaj Financial Securities Limited (BFSL) | Registered Office: Bajaj Auto Limited Complex , Mumbai –Pune Road Akurdi Pune 411035 | Corporate Office: Bajaj Financial Securities Ltd,1st Floor, Mantri IT Park, Tower B, Unit No 9 & 10, Viman Nagar, Pune, Maharashtra 411014| CIN: U67120PN2010PLC136026| SEBI Registration No.: INZ000218931 | BSE Cash/F&O (Member ID: 6706) | DP registration No : IN-DP-418-2019 | CDSL DP No.: 12088600 | NSDL DP No. IN304300 | AMFI Registration No.: ARN – 163403|

Research Services are offered by Bajaj Financial Securities Limited (BFSL) as Research Analyst under SEBI Regn: INH000010043. Kindly refer to www.bajajfinservsecurities.in for detailed disclaimer and risk factors

This content is for educational purpose only.

Details of Compliance Officer: Ms. Kanti Pal (For Broking/DP/Research)|Email: compliance_sec@bajajfinserv.in/Compliance_dp@bajajfinserv.in |Contact No.: 020-4857 4486 |

Investment in the securities involves risks, investor should consult his own advisors/consultant to determine the merits and risks of investment.

Related Videos