stop-loss-strategies

Stop-Loss Strategies

A stop-loss is not optional. Every position needs one before entry. The purpose is to cap your maximum loss — not to predict where price will go.

Prerequisites

No dependencies required. Provide entry price and key levels manually. Enhanced with Groww MCP (candles, ATR, MAs) or yfinance (pip install yfinance).

Data Needed

1. Entry price: Known or planned
2. Recent candles: fetch_historical_candle_data (daily, last 60 days) or user-provided levels
3. ATR(14): get_historical_technical_indicators from Groww, or calculate manually
4. Key S/R levels: From technical-analysis skill or swing highs/lows
5. Moving averages: SMA20, SMA50, SMA200

Stop Type Selection

| Method | Best For | How to Calculate | |--------|----------|-----------------| | Structure-based | Swing trades, clear chart patterns | Below recent swing low (long) or above swing high (short) | | ATR-based | Volatile stocks, no clear structure | Entry - ATR(14) × 1.5 to 2.0 | | Support/Resistance | Range-bound markets, clear levels | Below key support level + buffer | | Moving Average | Trend-following trades | Below SMA20 (aggressive) or SMA50 (conservative) |

Structure-Based (Preferred)

Find the most recent swing low (for longs) that, if broken, would invalidate your trade thesis.

Stop = Recent swing low - buffer
Buffer = 0.5% for large-caps, 1% for mid/small-caps

ATR-Based

Adapts to the stock's natural volatility:

Stop (long) = Entry - ATR(14) × multiplier
Stop (short) = Entry + ATR(14) × multiplier

Multiplier: 1.5 (tight) to 2.0 (standard) to 2.5 (loose)

Support/Resistance-Based

Place stop just below a confirmed support level:

Stop = Support level × (1 - buffer%)
Buffer: 0.5% large-cap, 1.0% mid/small-cap

Only use levels with at least 2 historical touches.

Moving Average-Based

For trend-following positions:

Aggressive: Stop below SMA20 (for short-term trends)
Moderate: Stop below SMA50 (for medium-term trends)
Conservative: Stop below SMA200 (for long-term holds)

Best when MA is clearly sloping in your direction.

Buffer Rules

• Round stop to nearest Rs.5 or Rs.10 for cleaner levels
• Use closing price as trigger, not intraday wicks (unless day trading)
• Add extra buffer if the stock has a history of stop-hunting wicks
• For illiquid stocks (avg volume < 50K/day), use wider buffers (1.5-2%)

Hard Rules

These are non-negotiable:

1. Max loss per trade: 2% of capital (1% if using leverage)
2. Never move stop further away — only tighten or leave unchanged
3. If stop hits: exit immediately at next open. No "let me wait for close"
4. Pre-set the stop: Decide before entering. Don't adjust based on emotions after entry
5. No mental stops: Use actual stop-loss orders on Groww if possible, or set hard price alerts

Stop Validation

Before finalizing, check:

• [ ] Is the stop beyond normal noise? (At least 1× ATR away from entry)
• [ ] Does the position size at this stop keep risk within limits?
• [ ] Is the R:R ratio still acceptable? (→ check with risk-reward-ratio skill)
• [ ] Is the stop below a meaningful technical level, not just a round number?