Stock markets are the backbone of thecountry's economy, thus it becomes imperative to have some knowledge aboutstock trading. Indian is fast becoming one of the emerging markets which have a lot of potential for future growth. Withthe help of this educational blog, wewish to impart the knowledge of some of the basic stock markettrading term and concepts. In this blog,we will focus on, what is target price and stop loss. Let us understand themeaning of both the terms:
Meaning of Target Price
TargetPrice is referred as the best possible projected price limit for a financial security. Target Price is alimit that is the best possible outcome for the stockholder's investment. Uponachieving the Target Price, the investors or traders simply sell their stocks, as according to them they have achievedthe most probable reward from those particular stocks.
Forexample, two different stock traders hold the stocks of INR 600. They may have different opinions about the financial profitthat they can gain from these stocks. One trader could set his target price atINR 750 whereas the other trader could set the price at INR 1200. Target Price issubject to risk tolerance and the amount of time an investor or trader can holdon to the security.
How to Determine the Target Price
Theinvestors or traders can determine the target price by conducting the technical analysis. Determination of theappropriate price targets can be done by applying many tools and methods suchas previous support and resistance, moving averages and Fibonacci extensions.
Meaning of Stop Loss
StopLoss is that pre-determined price limit which is set to minimise the loss of thestockholders. In most cases, the investors set their Stop Loss order for a brieftime period when they are either on a vacation or unable to monitor theirstocks. However, Stop Loss is beneficialif the stock market is declining in steady and orderly manner. In case, thestock market is declining in a disorderly mannerthen Stop Loss could also subject stockholders to losses.
Forexample, a stockholder has the shares of XYZ Co. which is currently trading at INR 500. To protect himself from a bigdecline, the stockholder has set the Stop Loss order at INR 480. If the stockvalue of XYZ Co. is reduced to INR 480 then in this event, the Stop Loss orderwould be triggered and at the next available price, the stocks of thestockholder would be sold. For instance the next available price of the XYZ co.is INR 479 then the investor's stockswould be sold at that value.
How to Determine the Stop Loss
As anormal trader or investor, you can set the stop loss at 5% or 10% below theprice at which you bought the stocks. However, technical analysts undertake the value of trendlines, swing highs, swing lows, major moving averages orresistance levels before determining the value for any Stop Loss order.
Also read -What is the trigger price in a stop loss order?
Conclusion
StopLoss and Target Price are the some of the core concepts that everyone relatedto stock market should know. Our professionalteam of experts at Indira Securities walk a fine line to provide profit to ourvalued customers while also keeping in mind to cut minimal losses if need be.We also offer learning courses to thosewho wish to gain more in-depth knowledge about the stock market and its economic paradigm.
If youhave any queries regarding Stop Loss and Target Price or you would like to knowmore 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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