Stock markets are the backbone of the
country's economy, thus it becomes imperative to have some knowledge about
stock trading. Indian is fast becoming one of the emerging markets which have a lot of potential for future growth. With
the help of this educational blog, we
wish to impart the knowledge of some of the basic stock market
trading term and concepts. In this blog,
we will focus on, what is target price and stop loss. Let us understand the
meaning of both the terms:
Meaning of Target Price
Price is referred as the best possible projected price limit for a financial security. Target Price is a
limit that is the best possible outcome for the stockholder's investment. Upon
achieving the Target Price, the investors or traders simply sell their stocks, as according to them they have achieved
the most probable reward from those particular stocks.
example, two different stock traders hold the stocks of INR 600. They may have different opinions about the financial profit
that they can gain from these stocks. One trader could set his target price at
INR 750 whereas the other trader could set the price at INR 1200. Target Price is
subject to risk tolerance and the amount of time an investor or trader can hold
on to the security.
How to Determine the Target Price
investors or traders can determine the target price by conducting the technical analysis. Determination of the
appropriate price targets can be done by applying many tools and methods such
as previous support and resistance, moving averages and Fibonacci extensions.
Meaning of Stop Loss
Loss is that pre-determined price limit which is set to minimise the loss of the
stockholders. In most cases, the investors set their Stop Loss order for a brief
time period when they are either on a vacation or unable to monitor their
stocks. However, Stop Loss is beneficial
if the stock market is declining in steady and orderly manner. In case, the
stock market is declining in a disorderly manner
then Stop Loss could also subject stockholders to losses.
example, a stockholder has the shares of XYZ Co. which is currently trading at INR 500. To protect himself from a big
decline, the stockholder has set the Stop Loss order at INR 480. If the stock
value of XYZ Co. is reduced to INR 480 then in this event, the Stop Loss order
would be triggered and at the next available price, the stocks of the
stockholder would be sold. For instance the next available price of the XYZ co.
is INR 479 then the investor's stocks
would be sold at that value.
How to Determine the Stop Loss
normal trader or investor, you can set the stop loss at 5% or 10% below the
price at which you bought the stocks. However, technical analysts undertake the value of trendlines, swing highs, swing lows, major moving averages or
resistance levels before determining the value for any Stop Loss order.
Also read - What is the trigger price in a stop loss order?
Loss and Target Price are the some of the core concepts that everyone related
to stock market should know. Our professional
team of experts at Indira Securities walk a fine line to provide profit to our
valued customers while also keeping in mind to cut minimal losses if need be.
We also offer learning courses to those
who wish to gain more in-depth knowledge about the stock market and its economic paradigm.
have any queries regarding Stop Loss and Target Price or you would like to know
more about the services we offer, you can reach us via call or email.
Open demat account with Indira Securities and start your trading journey with the best full-service providing brokerage firm in Central India.
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