Stop-Loss

A stop-loss is an order that automatically exits a position once the price moves against it to a predefined level, capping the loss on that trade. For a long position the stop sits below entry; for a short position, above. On Indian exchanges it is placed as a stop order that lies dormant until price touches the trigger, then fires either as a market order (SL-M) or as a limit order with a specified price band (SL).

The trade-off between the two: SL-M guarantees an exit but not the price (you accept slippage); SL limits the price but can be skipped entirely if the market gaps through your band — the worst possible outcome for a risk-control order.

Example

You buy INFY at ₹1,650 expecting a bounce, and place an SL-M order with trigger ₹1,617 — a 2% stop. If the stock drifts up, the stop never activates. If it falls to ₹1,617, the order fires and exits near that level; on 300 shares the loss is capped around ₹9,900 rather than left open-ended. In a fast fall the actual fill might be ₹1,615.50, slightly worse than the trigger. Hypothetical example, ignoring charges.

Why it matters

The stop-loss is where systematic trading most obviously beats discretion: an algo never widens the stop “just this once”, never hopes, and never averages down into a falling position. It also defines the risk half of position sizing — you cannot size a trade rationally without knowing exactly where it is wrong. Every rule-based strategy should specify its stop as precisely as its entry.

In INDfolio AI, stop-loss rules are part of every strategy definition and are enforced identically in backtests, paper trading and live execution.