Quote from logic_man:
I don't know how you know that if Buffett used stops he wouldn't be richer than he is now, but OK.
How the invocation of Buffett is supposed to make it "clear" to me that "in most cases stops aren't appropriate" is actually quite unclear. But, again, whatever.
Also, the idea of "common sense" is not one I would rely on at all in trading. The whole point of developing trading systems is because humans are biologically-wired to do the wrong thing at the wrong time when using their "common sense".
The reason an "edge" can disappear for a trade is that it wasn't ever there. The phenomenon of "false positives" occurs whenever the model being used to trigger a trade is incomplete. It's not that the edge disappears, it's that what really drives the edge is beyond your complete comprehension. What you do track vs. what you could track when it comes to trade triggers are two different things. There is always the possibility that something you are not tracking actually has an impact on your outcomes. It's like when you are doing regression models and you can't just throw every possible variable into the model, but you also know that some proportion of the outcomes are not accounted for by what you can put in the model. This is what r-squared measures. Your stop (or at least my stop) tells you when your model, which is by definition incomplete, missed something on that specific trade.
But, clearly your timeframe is much longer than mine if you consider what eventually happened after 9-11 as "mean reversion". I don't think holding a trade for months is worth the opportunity cost of tying up my capital.
