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Percentage on margin blocked stop loss method is stop loss or profits taken on total money risked or blocked as margin trading for that day.
This is continued from the article on best ways to keep stop loss for intra day trading. There we discussed the most popular method called the normal stop loss order method.
In India percentage stop loss method is the second most popular method after the normal stop loss order method.
For example let us assume an Option Intraday trader has bought Options worth Rs.45,000.
The most popular is 5% profit or loss taking percentage stop loss method. 5% is popular but this percentage may differ from trader to trader, and also from one day to another.
Below is an example of a day trader taking a 5% profit or loss on margin blocked. Based on 5%, the trader needs to calculate the points he needs to take a stop loss or profit.
Assuming Nifty Option which was bought was priced at 100 when he bought it. The trader bought 6 lots:
45,000/100 = 450/75 = 6 lots buy.
In other words 75 is the lot size currently of Nifty. 6 lots buy Option premium at 100 is equal to, 6*75*100 = Rs.45,000.00
The trader wants to make or lose 5% of 45000.
5% of 45000 = Rs. 2250.00
How to calculate the stop loss so that max loss is Rs. 2250.00
2250/75 = 30/6 = 5 points.
Here is the calculation:
5*6*75 = Rs. 2250.00
Therefore he keeps the stop loss as per his calculation of 5% max loss on margin blocked at 100-5 = 95.
And he keeps the profit taking target at 100+5 = 105.
Another easy way to calculate this is, just take out percentage of the premium price and keep the target or stop loss.
5% of 100 is 5. So keep profit target at 105, and stop loss at 95.
Please note that this point may change as per the premium of the Option.
For example if the Option premium was priced at 50 when he bought, the results of the percentage on margin block stop loss method will change. Assuming he is willing to trade with the same amount.
45,000/50 = 900/75 = 12 lots buy.
In other words 75 is the lot size currently of Nifty. 12 lots buy Option premium at 50, is equal to, 12*75*50 = Rs. 45,000.00
Now the trader wants to make or lose 5% of 45000: 5% of 45000 = Rs. 2250.00
Calculating the stop loss so that his max loss is Rs. 2250.00
2250/75 = 30/12 = 2.5 points.
Here is the calculation: 2.5*12*75 = Rs. 2250.00
Therefore he keeps the stop loss as per his calculation of 5% max loss on margin blocked at 50-2.5 = 47.50, and the profit target at 50+2.5 = 52.50.
If you want to calculate the easier way: 5% of 50 is 2.5.
For stop loss minus 2.5 from 50, for profits add 2.5 to 50 and set your targets.
Note that according to their experience in trading and market condition, intra day traders keep the profit loss percentage at different numbers.
For example on a very volatile day they might decide to keep stop loss at 8% and profit at 10%. Similarity on non-volatile days they may keep the profits and stop loss both at 3%. But this comes only after experience. If you are not very experienced trader and trading intra day, please keep your profits and loss small, so that even if you lose you lose less money. With time when your skills gets improved, you can vary the percentage of profit taking and stop loss.
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