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Shabbir is a developer in the field of Applications, web as well as database designing and is devoted to the optimization and usability of the code. Apart from doing some Share trading he maintains Programming forum and is a C++ addict.

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How to Calculate Stop Loss and Target Level

September 3rd, 2009 • Related • Filed Under

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 one of my favorite stock is in a range of 42 – 48 for quite some time now and so once it crosses 50 it should hit 57 easily.

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.

What next?

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There Are 13 Responses So Far. »

  1. Comment by Karthik on 24 January 2010:

    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

  2. Comment by Saurabh on 27 January 2010:

    Thanks buddy, your help will help me very much in future.

  3. Comment by Karthik on 27 January 2010:

    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

  4. Comment by Subal Burman on 27 January 2010:

    Hi Shabbir,

    Would it make sense to buy Dish TV at this level (~42) for short term (2-3 months) ??

    Subal

  5. Comment by Shabbir Bhimani on 28 January 2010:

    At 42 it is a bit expensive but if it holds that level for some time should not be a bad option.

  6. Comment by Subal Burman on 28 January 2010:

    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.

  7. Comment by Shabbir Bhimani on 28 January 2010:

    Subal, Wait will never be over and so its time to act now but not very aggresively

  8. Comment by Subal Burman on 28 January 2010:

    Thanks for your opinion. And any specific equity/equities would you like to name … :-)

  9. Comment by Shabbir Bhimani on 28 January 2010:

    Apart from Dish TV, Cox and Kings is the new one I like. Also to an extent Opto Circuit

  10. Comment by Subal Burman on 29 January 2010:

    Thanks .. bought C&K today.

  11. Comment by Shabbir Bhimani on 29 January 2010:

    Do share with us your % of profit if you make any.

  12. Comment by Subal Burman on 5 February 2010:

    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 ??

  13. Comment by Shabbir Bhimani on 5 February 2010:

    Start accumulating close to 40 or even under 40 but make them in small tranches.

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