STOP LOSS means “Exit with loss.”
Whenever we buy something and price moves in opposite direction, we exit at loss.
Unfortunately, as soon as our stop loss is hit, price reverse direction and moves in our direction. We get Feeling of Regret.
Stop loss harvesting /Scavenging is a trap in which retail investors lose money.
Whats Stop loss harvesting?
E.g. If a big player wants to buy 1 lac shares of Reliance. He doesn’t buy it directly. He sellS 1 lac shares and drop the price. It hits stop losses of retailers. Then big player buys 2 lacs shares at lower price. 1 lac shares for short covering and 1 lac for long position.
This phenomenon is very common and retailers get trapped in this.
Some traders Go into Revenge mode and Take short positions after stop loss is hit. He gets double punch during stop loss harvesting trap.
- If its Cash position, stop loss is not required, provided company is good company
- To be frank, I am not in favour of stop loss concept for Passive and Active investors.
- Short term traders have different methods, they need stop loss
Intraday: SL is needed
- For active investor stop loss should be decided by Chart pattern.
Breach of major supports..eg. weekly chart
Then active investors can take a call to exit.
- Stop loss to b calculated from base line or support on charts ..
EOD and Weekly
- The Simple and easiest way to put stop loss.
Below major trendline , weekly trend
- SL is Not required for long term investors