Actual data supporting no use of stop losses

[Q.E.D.]

I told you guys...stop losses don't stop a loss ..they guarantee one.

(Someone else said that here but don't remember to quote them)

Typical idiotic theory, not to use stop-loss methodology.
Yes, most stop-losses will be triggered. That is not the reason to use them, however.

The reason is that at some point -- whether that is after 1 trade, 100, or 10,000 trades, not using a stop-loss will either result in huge loss, and/or wipe out an account.

View it as using a seat-belt: history may show that neither you, nor your friends/relatives, have ever been helped by a seat-belt. But again, only idiots would not use one.

Same with house fire insurance: odds of a fire are extremely low, but not worth the risk of not paying for insurance.

The trick in trading -- as in life -- is not just what happens, but what might happen. And almost every day, in various markets, somebody is wiped-out, because they did not use a stop-loss.

And of course those advising not to use stop-losses, are always talking about long positions.

Another factor, rarely addressed: it is not the stop-loss that causes problems, it is the concept that if stopped-out, one can never re-enter. Having traded for decades, including managing funds as CTA, the stop-loss never impacts long-term -- as long as one has methodology to re-enter.

 

[wxytrader]

Typical idiotic theory, not to use stop-loss methodology.
Yes, most stop-losses will be triggered. That is not the reason to use them, however.

The reason is that at some point -- whether that is after 1 trade, 100, or 10,000 trades, not using a stop-loss will either result in huge loss, and/or wipe out an account.

View it as using a seat-belt: history may show that neither you, nor your friends/relatives, have ever been helped by a seat-belt. But again, only idiots would not use one.

Same with house fire insurance: odds of a fire are extremely low, but not worth the risk of not paying for insurance.

The trick in trading -- as in life -- is not just what happens, but what might happen. And almost every day, in various markets, somebody is wiped-out, because they did not use a stop-loss.

And of course those advising not to use stop-losses, are always talking about long positions.

Another factor, rarely addressed: it is not the stop-loss that causes problems, it is the concept that if stopped-out, one can never re-enter. Having traded for decades, including managing funds as CTA, the stop-loss never impacts long-term -- as long as one has methodology to re-enter.

There are other ways to protect a position. Stop losses are actually the worst form of protection as far as negative affect on pnl. They did a study on the s&p over the span of a decade I think. I can't find the article anymore but I posted it before.

Best to worst:

• Hedging with futures.
• Buying a protective put.
• Stop losses.

I imagine the reason for this mainly is that stop losses are useless when the market closes, so unless you are day trading or scalping they don't protect you at all.

Another factor, rarely addressed: it is not the stop-loss that causes problems, it is the concept that if stopped-out, one can never re-enter.

With that logic you are assuming that price will recover. In that case you are much better off averaging down.

 

[MarkBrown]

i think stops are best used by traders who have no plan

 

[deaddog]

i think stops are best used by traders who have no plan

What does your plan say to do when your position moves against you?

 

[d08]

True, data doesn't support SLs much. I traded for a while without any. What SL does it protect you from unforeseen moves. I managed to slightly improve my stats with SL but for the most part they exist for peace of mind and lower volatility.

 

[d08]

Best to worst:

• Hedging with futures.
• Buying a protective put.
• Stop losses.

1. What if the correlation with the index is unreliable? Many names have correlation until news hits and all S&P corr. is lost, that protection does nothing.
2. And with names that don't have options? There's also time decay and you're paying the extra spread most probably.

 

[wxytrader]

1. What if the correlation with the index is unreliable? Many names have correlation until news hits and all S&P corr. is lost, that protection does nothing.
2. And with names that don't have options? There's also time decay and you're paying the extra spread most probably.

Yeah so what happens when you get a 10% drawdown overnight? How is your stop loss going to handle that in the morning? If you're not day trading then stop losses are absolutely useless anyway... The study shows they're not that much better even when they are working.

 

[d08]

Yeah so what happens when you get a 10% drawdown overnight? How is your stop loss going to handle that in the morning? If you're not day trading then stop losses are absolutely useless anyway... The study shows they're not that much better even when they are working.

That only applies to equities. Futures and Forex are nearly always trading. If you are trading overnight then you need to size accordingly but generally yes, buying protection in that case makes much more sense.

 

[Ethan.ishere]

The only time I would not set SLs is when I am trading on Crypto, short time frames to be exact.

 

[taowave]

As in Paul Tudor Jones??

In your defense,Stanly Druckenmiller believes

"I’ve never used the stop loss. Not once. It’s the dumbest concept I’ve ever heard. [If a stock goes down 15%] I’m automatically out. But I’ve also never hung onto a security if the reason I bought it has changed. That’s when you need to sell."

So whos right?

Maybe Steve Cohen??

"Cohen: Listen, you’re going to lose money. Your going to take risks your going to lose money. I think the three things are liquidity, leverage, and concentration. Those are the three rules. "

Stops,no Stops,Martingale,Anti Martingale......

Does it really matter???

If a method doesnt suit your emotional mental makeup,its not going to work for you regardless of the "inherent mathematical edge"...

There is lots of ways to make money trading,choose your path, and strive for excellence..

i think stops are best used by traders who have no plan