How to Calculate Stop Loss and Target Level

On TV if you see many analyst suggest Stop Loss and Resistance price and I got an email from a blog member Srinivas where he asked.

… I would like to know how to calculate the stop loss and Target price of any stock. I have seen in TV, analyst are telling buy XYZ stock on X rate, Stop loss is Y, n Target is Z.
Is there any calculation behind these?

There is definite calculation behind it but its not mathematical calculation but its based on charts and patterns.

Say the Stock XYZ is currently priced at 100. Now the stop loss for the stock would be something less than 100 where the Stock XYZ traded in large volumes and spent some time before coming to 100. Say when the stock was between 82 to 88 it spent 10 trading sessions and was trading on averagely good volume and then broke out and so the stop would be anything between 82 and 88.

Now the target for the price would be based on more previous history as to how much in percentage terms it moves each time it breaks out and so if it broke out of 90 and history shows it moves 20% previously when it broke out of range before hitting resistance then it would be 108 ( 90 + 20% of 90 ) the target for the stock.

Now lets take a real time example.

DISH TV is in a range of 42 – 48 for quite some time. So once it crosses 50 it should hit 57 easily because 57 is point from where it fell off previously indicating resistance.

DishTV-6m-daily

Again If we take the example of Nifty you would see that it is not able to cross 4700 currently and it is spending time between 4500 and 4600 and so once there is a substantial breakout above 4700 and remains above it for some trading session then the stop loss would be anything between 4600 and 4500.

Comments

  1. P P DHAMANGAONKAR says

    DEAR SHABBIR ,
    GD EVNG
    I AM A RETISIRED ENG
    I KNOW FEW THINGS ABOUT SHARE MARKET/TRADING
    I WANT TO BUILD A LONG TERM FOLIO , WHICH WILL GIVE ME ATLEAST 15 TO 20 % RETURNS
    I DEFINITELY DON’T WANT TO ENTER INTRA DAY TRADING
    I KNOW VERY LITTLE ABOUT TECHNICAL ANALYSIS
    HOW YR BOOK WILL HELP ME TO ACHIEVE MY GOALS
    WAITING FOR YR REPLY
    DHAMANGAONKAR

    • says

      Technical analysis does not work well for investment of 3+years and so I am not sure my ebook can help you invest in stocks if you have very long term investment horizon but for investments ranging in 1 to 2 years, you can apply the price action technicals.

  2. sanjeev shukla says

    hi,
    i am new to this business and needs to understand the technical analysis. Pleas recommend some good book. Also i would like to understand the option index (call/put).
    Please do the needful.

    Sanjeev

    • says

      Vinod, I will suggest you find those information all by yourself and still I will give you some information on your stock. Hold if it does not crack 700 decisively and if it break out above 800 should be a good buy.

      Now about the purchase price I think you have purchased once the spike was over and so make sure you don’t purchase after the spike but in the spike or before the spike by understanding the breakouts.

      Looking at the volume pattern I think this was a play by someone and as I don’t track I may not be able to say more on that play but volume patterns suggests it was a play and you have to play it rightly.

  3. Naveen says

    Hi Shabbir,

    Can you suggest any software or website to get technical chart in realtime ?

    Thanks..
    Naveen

  4. rizwan says

    sir i want to know how to learn traing can you recommend me from where i can learn and practise trading and how to use its indicators and from where i should learn trading and become proffesinal..please recommend me any book or course to learn trading

  5. Salm says

    I have read your article about Moving average charts. However, I would like to know how to calculate PIVOT POINT of a stock without drawing Moving average charts.

    Regards

  6. Salm says

    Hi,

    Do you know how to calculate Pivot point of a stock? How does pivot point helps.
    Waiting for your reply.
    Regards,
    Salm

  7. rajiv says

    Dear Sir,

    I am into research analysis.
    can u suggest me some good book on technical analysis.

    Regards,
    Rajiv
    9999668687

  8. Suhail Arfi says

    Respected Sir,
    I am new here in stock market and want to know all about it so that i can also invest my money.could you suggest me where i invest at earlier stage?

    Regards
    Suhail Arfi

  9. Salahu says

    Hello Shabir,

    How is TATA steel look at this current price? Its price looks very attractive at P/E of about 8. What is your call on this stock? Currently trading at 605.4 after a steep correction.

    Please suggest. Any other good stock can you suggest now after a deep correction? My investment horizon is 3 months.

  10. says

    Thanks a lot karthik, many beginners like me must have been enlightened by your above simple explaination. per your advise i went to nseguide.com and nsetipzin and tried to follow what you said. Now i ahave a basic question, can stop loss be greater than target? and in what scinario? when i checked some stoks have stop loss greater than target and some have less.

  11. Subal Burman says

    As per this discussion thread, you had commented that Dish TV is a tad bit expensive at 42 levels. It is at 39 now. Any levels at which you would suggest me to enter this counter ??

  12. Subal Burman says

    Thanks Shabbir. That Dish TV question was a specific one (primarily becoz u said that it was one of your favorite stock) .. let me ask you a general question .. i want to invest some amount in equities now. Markets have corrected about 7-8% from its high. Is it a good time to buy .. or shall i wait & watch ?? Would you like to suggest buying any specific equities at this point of time that you think have corrected quite a bit and a ready to bounce once the markets turn northwards.

  13. Karthik says

    Hi,

    I am sorry, the another site which I check got missed out while typing.

    That is http://nse.tipzin.com/

    I always compare these two above urls for entry price level for that stock.
    Most of the time, it works out.

    With Regards,
    Karthik Siddhun

  14. Karthik says

    Hi,

    While this is a very good explanation in simple terms, as a end-user and a day trader, he looks at immediately one scrip’s stock price movements expected on that day.

    During that given point of time, the particular single company’s stock price value is predicted with its Resistance Levels / Entry Levels / Supports Levels based on the previous close, L/H/O prices.

    I always have a quick check with two sites regular basis, in many occasions, they match each other.

    http://nseguide.com

    And then, I organize myself, to enter at its pivot price point.

    Due to curiosity, I learned the calculation on how to measure and find out these price levels. That is also handy and works out at many circumstance.

    This is the way, I am doing it. I don’t know any other methods exist or not.

    Regards,
    Karthik Siddhun

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