A stop loss is the price at which you decide, in advance, to exit a trade if the market moves against you. In Urdu you could say it is the point where you nuqsan ko rok dete hain: you accept a small, planned loss so that it cannot turn into a large one. This guide explains what a stop loss is, how a trailing stop loss works, and how to set both on Pakistan Stock Exchange (PSX) charts.
Why every trade needs a stop loss
Most beginners lose money not because they pick the wrong share, but because they hold a losing trade for too long, hoping it will come back. A stop loss removes that decision from the heat of the moment. Before you buy, you already know:
- Where you will get out if you are wrong
- How much you can lose on the trade, in rupees
- Whether the trade is worth taking at all, by comparing that risk with your realistic target
Example: you buy 500 shares at Rs 100 and place your stop loss at Rs 95. If the price falls to Rs 95, you exit. Your loss is Rs 5 × 500 = Rs 2,500, plus brokerage and taxes. You knew this number before you entered.
Where to place a stop loss
A stop loss should sit at a level where your reason for buying is clearly proven wrong, not at a random percentage. Common choices are:
- Below support: if you buy near a support level, place the stop a little below it. If support breaks, the setup has failed.
- Below the last swing low in an uptrend
- Using an indicator such as Supertrend, which gives a clear line on the chart
Then work backwards: decide how much of your capital you are willing to risk on one trade (many traders use 1–2%), and size your position so that hitting the stop loss costs no more than that.
Video: Stop loss explained (Part 1)
What is a trailing stop loss?
A trailing stop loss moves up as the price moves in your favour, but never moves down. It lets you stay in a winning trade while gradually locking in profit.
Example: you buy at Rs 100 with a stop at Rs 95. The price rises to Rs 115 and forms a new higher low at Rs 108. You move your stop up to just below Rs 108. If the trend continues, you keep trailing. If the price reverses, you are taken out with most of the gain protected, instead of watching it disappear.
Ways to trail a stop:
- Below each new higher low in an uptrend
- Along the Supertrend line as it rises
- Below a moving average (EMA) the share has respected during the trend
The rule that matters most: a stop loss for a long trade only ever moves up. Moving it down to “give the trade more room” defeats its purpose.
Video: Trailing stop loss explained (Part 2)
Placing a stop loss in practice
Some broker apps in Pakistan let you place a stop-loss order that triggers automatically. If yours does not, or if the share is thinly traded, set a price alert and exit manually as soon as the level is hit. Either way, write the level down before you enter the trade and do not change it to avoid a loss.
Common mistakes
- Placing the stop so close that normal daily movement hits it
- Not having a stop at all, or keeping it “in your head”
- Moving the stop further away when the price approaches it
- Risking too much of your capital on a single trade
Want to go beyond the basics?
This guide covers the basics of stop losses. Our technical analysis and trading course in Urdu takes you much further, with what this article leaves out:
- Complete trading strategies, with clear rules for entries, exits and stop losses
- Real chart examples, worked through step by step
- How to combine indicators, chart patterns and risk management into one plan
- Techniques you can apply to the Pakistan Stock Exchange, crypto, forex and other live markets
24 recorded lessons · about 11.5 hours · 12 months of access
This article is for education only and is not investment advice. Trading shares involves risk, including the loss of capital.