How to Set a Target Price and a Stop Loss

What is the simple way to fix your exit prices before you buy?

Set your stop loss first, at a price where your reason for buying is proven wrong, such as below a recent swing low. Then set the target at least twice as far above your entry as the stop is below it. Risk only a small slice of your capital on each trade.

Key Takeaways

• Decide the stop loss before the target. The stop is where you are wrong; the target is only where you hope to be right.
• Place the stop at a level the market should not reach if your idea is correct, not at a random 5% or 10%.
• Size the position from the stop. Risk a small, fixed share of your capital on each trade, such as 1%.
• Aim for a target at least twice as far as your stop, so a few wins can pay for several losses.
• On NSE and BSE, a stop can slip on gaps, so use SL orders or GTT orders and accept that the exit price may differ.
• Long-term investors can use a business-based exit instead of a price stop, but they still need a written rule.

What do target price and stop loss actually mean?

A target price is the level at which you plan to sell and take your profit. A stop loss is the level at which you plan to sell and accept a loss. Together they turn a vague hope into a plan with a start, a best case and a worst case.

Most people who lose money in the market do not lose it on bad stock picks alone. They lose it because they had no exit. The stock fell, they told themselves it would come back, and a small loss grew into a big one. The stock then rose, they waited for more, and it fell back to where they bought.

Both numbers do the same job. They take the decision out of your emotions and put it on paper, before you have money riding on it. When the price is falling and your stomach is tight, you do not have to think. You only follow what you wrote down.

One thing to keep in mind from the start. These numbers are about managing risk, not predicting the future. Nobody knows where a stock will go. You are only deciding in advance how much you are willing to lose and how much you are hoping to make.

How do I decide where to place a stop loss?

Ask one question: at what price would I admit that my reason for buying was wrong? That price is your stop. It is not a fixed percentage like 10%. It is a level on the chart that the stock should not touch if your idea is right.

The easiest level is a recent swing low. That is the last price where the stock fell and then turned back up. If you buy after a bounce and the stock drops below that low, the bounce has failed. Put the stop a little under it, not exactly on it, because many other people place stops at the same round number.

A second method uses the stock's normal daily movement. Look at how much the stock typically swings in a day. A stop that is smaller than one or two normal days of movement will be hit by ordinary noise. A volatile small-cap needs a wider stop than a slow large company.

A third method is a plain percentage of your buying price. It is simple and better than nothing, but it ignores the chart. Use it only if you cannot read levels yet, and keep it consistent.

Whichever method you use, never move the stop further away after you buy. Moving it closer to lock in profit is fine. Moving it away because you are scared is how a small loss becomes a big one.

How much money should I risk on a single trade?

Decide this before you pick the stop, because it tells you how many shares to buy. A common rule is to risk no more than 1% of your total trading capital on one idea. Some people go up to 2%. Beginners do better at the low end.

Here is an illustrative example. These figures are made up to show the method and are not a call on any stock. Say your capital is ₹5,00,000 and you risk 1%, which is ₹5,000. You want to buy a stock at ₹200 and your stop is at ₹185. Your risk per share is ₹15. Divide ₹5,000 by ₹15 and you get about 333 shares.

If the stop is hit, you lose about ₹5,000, which is 1% of your capital. That hurts a little but does not damage you. You can be wrong ten times in a row and still have most of your money.

Notice what this does. The stop decides the size of the position, not your excitement about the stock. A wide stop means fewer shares. A tight stop means more shares. Your loss stays the same either way.

Without this step, people buy a fixed amount like ₹50,000 of everything. Then a stock with a wide natural swing can cost them far more than a calm one, even though the amounts looked identical.

How do I work out a target price for a stock?

There are three practical ways. The first is to use the chart. Look for a level where the stock has stopped rising before, such as an old high. That is a natural place where sellers have appeared in the past, so it is a sensible place to expect trouble.

The second is to use valuation. Look at what the business earns and what price the market usually pays for that kind of company. As of September 2026, the median PE across the 1,518 listed Indian companies in our universe with full-year fundamentals was 24.0. That gives you a rough anchor. A company trading far above that needs strong growth to justify it. A company far below it may be cheap or may have a real problem. Compare a stock with its own past range and with similar businesses, not with the whole market alone.

The third is to work backwards from the reward you need. If your stop is ₹15 below your entry, you may decide you want at least ₹30 above it. That sets a minimum target. You then check whether the chart or valuation shows that level as realistic. If the next resistance sits only ₹10 above, the trade is not worth taking.

A target is an estimate, not a promise. Use more than one method and be happy when two of them point to a similar level. If they disagree wildly, your target is a guess, and you should size the trade smaller.

What is a good risk-reward ratio?

The risk-reward ratio compares how much you can lose with how much you can gain. If you risk ₹15 a share to make ₹30, the ratio is 1 to 2. A common minimum is 1 to 2, and many investors prefer 1 to 3 when the setup allows it.

The reason is simple arithmetic. Say you are right only four times out of ten, which is not a bad record. At 1 to 2, your four wins make eight units and your six losses cost six units. You still come out ahead. At 1 to 1, the same record loses money.

This is why a high win rate alone does not make you profitable. Many people take profits at ₹5 and hold losses to ₹20. They win often and still lose money.

Check the ratio before you buy, not after. Take your entry, your stop and your target, and divide the reward by the risk. If the answer is below 2, either find a better entry, accept that the trade is weak, or skip it.

There is no prize for taking every trade. Passing on a poor setup is a decision too, and often the best one of the week.

Should a long-term investor use a stop loss?

It depends on why you own the stock. A trader who buys for a two-week move should have a tight price stop. A long-term investor who buys a good business for five years usually should not sell just because the price dips 15% in a bad month.

The long-term investor needs a different kind of stop: a business stop. Write down what must stay true for you to keep holding. For example, the company keeps earning a healthy return on its money, its debt stays under control, and management stays honest. If those facts break, you sell, whatever the price is doing.

This is where quality matters. Of the 1,518 companies in our universe with full-year fundamentals, only 22.0% passed ROE above 15%, ROCE above 15% and debt-to-equity below 1 together, as of September 2026. A stock that fails those checks has less cushion when things go wrong, so it deserves a tighter leash.

One caution on the debt check. Banks and NBFCs are unfairly penalised by a flat debt-to-equity rule, because borrowing is their business model. Judge them with measures made for lenders.

Even for long-term holdings, set a loss limit in rupees or percent that forces you to review. It does not have to sell automatically. It only has to make you stop and ask whether you still agree with your original reason.

How do stop-loss orders work on NSE and BSE?

Your broker's app gives you two main types. A stop-loss limit order (SL) has a trigger price and a limit price. When the trigger is touched, a limit order is placed. If the price falls past your limit quickly, the order may not fill at all.

A stop-loss market order (SL-M) sells at the best available price once the trigger is hit. It is more likely to execute but the price may be worse than you expected. Check which types your broker offers for the segment you trade, as rules differ.

Gaps are the biggest surprise. If bad news arrives overnight, a stock can open far below your stop. Your order will then execute at the opening price, not at your stop. Your actual loss can be larger than planned. This is one more reason to keep position sizes small.

Stocks with circuit limits can also freeze. If a stock hits its lower circuit, there may be no buyers and your order may sit unfilled. Thinly traded small-caps carry this risk more than large index names.

For positions you want to hold for days or weeks, many brokers offer GTT orders, which stay active until triggered. Remember that a GTT order is placed with the exchange conditions in mind and can also be affected by gaps. Also remember taxes: gains on listed shares are taxed at short-term or long-term rates depending on how long you hold, so check the current rates before planning a target around a holding period.

What mistakes make stop losses and targets fail?

The first mistake is setting the stop after the loss starts. A stop made while you are scared is just a hope in disguise. Write it before you buy.

The second is placing the stop too tight. If it is smaller than the stock's normal daily movement, you will be stopped out and then watch the price go to your target without you. Check how much the stock usually moves before choosing.

The third is moving the stop further away. This feels harmless but it removes the whole point. A stop you keep moving is not a stop.

The fourth is a target that is wishful. Picking ₹500 because it is a round number, with no chart level or valuation behind it, is guessing. Tie each target to something you can point at.

The fifth is ignoring costs. Brokerage, taxes and the gap between buying and selling prices all eat into a small win. A tiny target may leave you with nothing after costs.

The last is treating a stop-out as a failure. It is not. It is the cost of doing business. A trader who is stopped out for a small loss and has kept the rest of the money is doing the job properly. The embarrassment is often what pushes people to ignore the rule next time. Do not let it.

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Conclusion

Start with the stop, size the position from it, and then check that the target is at least twice as far away. Write all three numbers down before you buy, and follow them when the price moves against you. If you want the actual levels for specific stocks, those sit with our research behind KYC in the app.

BossInvestor is a SEBI Registered Research Analyst (INH000024143). This article is for educational and informational purposes only. It explains a method and is not investment advice, nor a recommendation to buy, sell or hold any security. Market-wide figures are computed from our universe as of September 2026; past metrics do not guarantee future results. Always do your own research or consult a registered adviser before investing.

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Frequently Asked Questions

Should I set the stop loss or the target price first?

Set the stop loss first. It defines how much you can lose, and that decides how many shares you can afford to buy. The target comes second and must be far enough away to make the trade worth the risk. If the realistic target is too close compared with your stop, skip the trade.

What percentage should a stop loss be?

There is no single right percentage. A stop should sit at a level that proves your idea wrong, such as below a recent low, and be wide enough to survive the stock's normal daily swings. A volatile small-cap needs more room than a steady large company. Fix the rupee loss you accept, then size the position.

Is a 1 to 2 risk-reward ratio good enough?

Yes, 1 to 2 is a common minimum. It means you aim to make twice what you risk. Even if you are right only four times in ten, you can still come out ahead. If a trade offers less than that, it is usually better to wait for a better entry.

Can a stop loss fail to protect me on NSE or BSE?

Yes. If a stock gaps down overnight, your order executes at the opening price, which can be well below your stop. A stock locked in a lower circuit may not sell at all. Keep each position small enough that a worse-than-planned exit does not hurt badly.

Do I need a stop loss for long-term investing?

Not always a price stop. A long-term investor can instead write down the business facts that must stay true, such as healthy returns and manageable debt, and sell if they break. Still set a loss level that forces you to review the holding, so a falling price does not go unexamined.