Founder, Underpitch · Educational material on market structure, chart reading and risk awareness.
3 July 2026
Risk management converts a chart idea into a survivable position. Place the stop where the setup is invalid—not where the desired quantity becomes affordable—then size the position so the rupee loss, including slippage and charges, stays within a predefined limit.
Key points
- Define risk before entry.
- Stops are not guaranteed execution prices.
- Position size must adapt to stop distance.
- Total portfolio risk matters more than one trade.
Chart stop versus money stop
A chart stop uses market structure. A money stop uses a fixed loss. The practical method is to choose structure first, then reduce quantity to fit the money risk.
Risk-to-reward
A target-to-stop ratio is useful only with a realistic win rate and execution. A high ratio does not rescue a poor setup.
Trailing and partial exits
Trailing stops protect gains but can exit too early. Partial exits reduce exposure but may lower average payoff. Rules should be tested.
Portfolio heat
Several correlated positions can behave like one large trade. Add the planned loss across all open positions and consider sector or index concentration.
Worked Indian-market example
Capital is ₹10 lakh and the maximum planned loss is ₹5,000. A setup enters at ₹250 with invalidation at ₹242, an ₹8 risk per share. The theoretical size is 625 shares before slippage; the trader uses fewer shares to allow execution risk.
Quick reference
| Concept | What it shows | Practical meaning |
|---|---|---|
| Initial stop | Setup invalidation | Controls planned loss |
| Position size | Risk budget ÷ stop distance | Adapts exposure |
| Target | Structure or measured move | Not guaranteed |
| Trailing stop | Moves with favourable price | Can protect or cut winners |
Risks and limitations
- Gaps can exceed the stop.
- Illiquidity increases slippage.
- Moving a stop farther increases unplanned loss.
- A string of losses can still create a drawdown.
Frequently asked questions
Where should a stop be placed?
Beyond the point that invalidates the setup, with volatility considered.
Is a 1% risk rule always safe?
No. It is only a rule of thumb and may be too high or low.
Should I move the stop to breakeven quickly?
Only if your tested method supports it; early moves can cut normal fluctuations.
What is portfolio heat?
The combined planned loss across open positions, adjusted for correlation.
Sources and methodology
Technical analysis is a market-study framework, not a promise of returns. Verify exchange rules, contract specifications and risk disclosures from official sources before acting.
This page is for education and chart-reading awareness. It is not a personalised investment, trading, legal or tax recommendation. Technical setups can fail and market losses can exceed the planned amount because of gaps, leverage, liquidity and execution.