Truths about stop-losses that nobody wants to hear

By tdutoit, June 24, 2015

[ed. note: If you’ve read my work here at Stock Gumshoe over the past many years, you probably know that I don’t use strict or consistent stop losses with my holdings and I tend not to like the practice — but I thought you’d like to hear the other side, why they can work and how they work, so I asked Tim du Toit, a longtime European reader who has written about both value investing and quantitative investing, to share the results of his research. He’s also got an interesting stock idea for you at the end… enjoy!]

We here at Quant Investing have never been strong supporters of stop-loss systems. This is mainly because testing we did came to the conclusion that a stop-loss strategy leads to lower returns even though it reduced volatility (large losses).

Why we read all the time?

However, we recently found three interesting papers that tested stop-loss strategies with very interesting results.

Before I get to how you can use the information to increase your returns, some detail on the research studies:

Research study 1 – When Do Stop-Loss Rules Stop Losses?

The first research paper I found is called When Do Stop-Loss Rules Stop Losses? and was published in May 2008 by Kathryn M. Kaminski and Andrew W. Lo.

The paper looked at the application of a simple stop-loss strategy applied to an arbitrary portfolio strategy in the US markets over the 54 period year period January 1950 to December 2004.

How applied

The strategy used a simple 10% stop loss value — when exceeded, the portfolio was sold and the cash invested in long term US government bonds. The investment would be moved back into the stock market once the 10% fall in the stock market was recovered (the 10% stop-loss was recovered).

What they found: it worked very well

If the researchers excluded the technology bubble (used data from Jan 1950 to Dec 1999), when their simple stop-loss model got back into the stock market too quickly, they found that when the model was invested in the stock market it provided a higher return than bonds 70% of the time, and during stopped-out periods (when the model was invested in bonds), the stock market provided a higher return only 30% of the time.

Even applied to the whole 54 year period the study found that this simple stop-loss strategy provided higher returns while at the same time limiting losses substantially.

What they also found was that the stop-out periods were relatively evenly spread over the 54 year period they tested. This shows you that the stop-loss was not just triggered by a small number of large market movements (crashes).

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Research study 2 – Performance of stop-loss rules vs. buy and hold strategy

The second research paper was called Performance of stop-loss rules vs. buy and hold strategy, published in 2009 by Bergsveinn Snorrason and Garib Yusupov.

What they tested

They compared the performance of following a trailing and traditional stop-loss strategy to a buy and hold strategy on companies in the OMX Stockholm 30 Index over the 11 year period between January 1998 and April 2009.

Investments were made on the first trading day of a quarter (starting January 1998), and at the end of a quarter the proceeds were reinvested.

When a stop-loss limit was reached, the company was sold and the proceeds held in cash until the next quarter when it was reinvested.

They tested stop-loss levels from 5 to 55%.

Trailing stop-loss results

The table below shows the results of the use of a trailing stop-loss strategy.

As you can see the highest average quarterly return (Mean = 1.71%) was obtained by trailing stop-loss with a 20% loss level limit. The highest cumulative return (Cumulative = 73.91%) was achieved at the 15% trailing stop-loss limit.
The only stop-loss level that delivered a worse result than the buy-and-hold (B-H) portfolio, with a negative average return of 0.12% and cumulative return of -8.14%, was from a trailing stop-loss strategy with 5% loss limit.

Returns from using a trailing stop-loss strategy

trailing1

Trailing Stop-loss, equally-weighted portfolio performance
trailing2
The result of using a 15% and 20% loss levels give you about the same overall result with a 20% stop-loss level leading to higher returns most of the time.

Traditional stop-loss strategy

The following table shows you the results if you applied a traditional stop-loss strategy, which means that you would calculate the stop-loss from the purchase price.

Returns from using a traditional stop-loss strategy

trailing3
As you can see all traditional stop-loss levels from 5% to 55% would have given you better returns than the buy and hold (B-H) strategy.
The highest average quarterly return (Mean = 1.47%) was achieved at the 15% stop loss level and the highest cumulative results of 57.1% at the 10% stop-loss level closely followed by the15% stop-loss level at 53.31%.
The chart below shows you the results of the traditional stop-loss strategy for all tested stop-loss levels.

Traditional Stop-loss, equally-weighted portfolio performance

trailing4
In the chart you can see that the 15% loss level would have given you the best result over the largest part of the 11 year test period.

What is the best strategy?
So what is the better stop-loss strategy, you may be thinking?

To find out I deducted the results of the traditional stop-loss strategy from the trailing stop-loss strategy.

The results are summarised in the following table:

Trailing stop-loss minus Traditional stop-loss

trailing5

Trailing better than traditional

Only at the 5% and 10% loss levels did the traditional stop-loss perform better than the trailing stop-loss. At all other loss levels the trailing stop loss out performed, most notably at the 20% loss level where it performed 27.47% better over the 11 year period.

Research study 3 – Taming Momentum Crashes: A Simple Stop-loss Strategy

The third research study I looked at is called Taming Momentum Crashes: A Simple Stop-loss Strategy by Yufeng Han (University of Colorado), Guofu Zhou (Washington University) and Yingzi Zhu (Tsinghua University) and was published in August 2014.

What they looked at

The researchers applied a simple momentum strategy of buying the 10% of companies with the largest price increase the past six months and selling short the 10% of companies with the largest price decline the past six months.
Once the stop-loss was triggered on any day the company was either sold (Winners) or bought (Losers) to close the position. The proceeds were invested in the risk-free asset (T-bills) until the end of the month.

Tested for 85 years

They applied this strategy over the 85 year period from January 1926 to December 2011 to all US domestic companies listed on the NYSE, AMEX, and NASDAQ stock markets (excluding closed-end funds and real estate investment trusts).

Lower losses

At a stop-loss level of 10%, they found that the monthly losses of an equal weighted momentum strategy went down substantially from −49.79% to −11.34%.

For the value-weighted (by the last month-end market size) momentum strategy, the losses were reduced from −65.34% to −23.69% (to -14.85% if August 1932 is excluded).

Higher returns

Not only did the application of the simple stop loss strategy reduce losses, it also increased returns.

The stop-loss strategy increased the average return of the original momentum strategy from 1.01% per month to 1.73% per month (a 71.3% increase), while reduces the standard deviation of returns from 6.07% per month to 4.67% (23% reduction).

This increased the Sharpe ratio (measure of risk adjusted return) of the stop-loss momentum strategy to 0.371, more than double the level of the original momentum strategy of 0.166.

Helps you avoid market crashes

The stop-loss momentum strategy also completely avoided the crash risks of the original momentum strategy as the following table convincingly shows.
trailing6

Note that if you followed a stop loss strategy you would have made a small profit when the momentum only strategy lost nearly 50% and 40%.

Summary and conclusion – Stop-loss strategies work

This has been a rather long article to come to a very clear and simple conclusion: Stop-loss strategies work

As you have seen:

  • When applied to a 54 year period a simple stop-loss strategy provided higher returns while at the same time lowering losses substantially
  • A trailing stop loss is better than a traditional (loss from purchase price) stop-loss strategy
  • The best trailing stop-loss percentage to use is either 15% or 20%
  • If you use a pure momentum strategy a stop loss strategy can help you to completely avoid market crashes, and even earn you a small profit while the market loses 50%
  • Stop-loss strategies lowers wild down movements in the value of your portfolio, substantially increasing your risk adjusted returns

The difficult part

The key to making a stop-loss strategy work is to stick to the plan, not once but over and over and over again. The difficult part is to not let your emotion keep you from selling when a stop-loss level is reached.

How to implement your stop-loss strategy

This is how you can implement a stop-loss strategy in your portfolio, it is also the strategy we use for the newsletter.

  1. Implement a trailing stop-loss strategy where you calculate the losses from the maximum price the company has reached since you bought it
  2. Only look to see if the stop-loss percentage has been exceeded on a monthly basis. If you look at it on a daily basis you may sell the investment if the company share price gets volatile. This will also ensure that you keep your trading costs as low as possible
  3. Sell your investment if at the monthly evaluation date the trailing stop-loss level of 20% has been exceeded
  4. Measure the trailing stop-loss in the currency of the company’s primary listing. This means measure the stop-loss of a Swiss company in Swiss Francs (CHF) even if your portfolio currency is Euros
  5. Reinvest the cash from the sale in the best idea that currently fits with your investment strategy. If you subscribe to the newsletter you would invest in the ideas you receive the month the investment is sold

Of course, it will not always work

These studies all showed the success of a stop-loss strategy over long periods of time, this of course does not mean that a buy and hold strategy will not sometimes outperform your stop-loss strategy… but over the long term it will reduce your portfolio’s volatility (large losses) and increase your compound investment returns.

System that sells your losers to invest in your best ideas

What a stop loss strategy also does is gives you a system to sell losing investments and invest the proceeds in your current best idea which may be a large potential winner.

Your stop-loss analyst

Tim du Toit
Head analyst
www.quant-investing.com
Sources:
Performance of stop-loss rules vs. buy and hold strategy Bergsveinn Snorrason and Garib Yusupov – Spring 2009
Taming Momentum Crashes: A Simple Stop-loss Strategy Yufeng Han, Guofu Zhou, Yingzi Zhu, August, 2014
When Do Stop-Loss Rules Stop Losses? Kathryn M. Kaminski and Andrew W. Lo May 1st, 2008
The Big Picture Blog – The Virtues of Stop Losses

Interesting investment idea
Here is an interesting investment idea the screener (www.quant-investing.com/screener) came up with for you to research further.

In spite of its fast growth the company is cheap because it has a bit of Greek flavour.
The company is called Globo PLC and is listed on the London AIM market (GBO.L, GOBPY OTC in the US).

It’s a smartphone app developer and its growing fast.
For the year ended 31 December 2014, the company reported a 48.8% increase in sales to €106.4 million from €71.5 million, the previous year. The increase was primarily driven by a strong organic growth in the mobile products and services of the company, where sales grew 49.0% to €96.4 million from €64.7 million.

Globo Technologies S.A., its associate company in Greece, saw a 27.8% increase in sales to €32.2 million and contributed to 30.2% of the overall sales.

Operating profit amounted to €37.3 million, up by 36.6% from the previous year. Operating profit increased less than sales due to increased distribution and administration expenses.

Net profit increased by 38.2% to €35.0 million from €25.3 million, while earnings per share increased 27.0% to €0.094 from €0.074.

Valuation
At the current share price of GBP 0,575 the company is valued at only 8.9 times trailing 12 months earnings
(Note: the share price is quoted in GBP but the results are published in Euro)

Disclosure: I have a position in Globo PLC and will not buy or sell any shares for three days after this article has been published.


This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.

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Tom
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Tom

Not going to name names. In 2008 I had trailing stops in place with my trade site.
The stops were worthless. They did not work. I ended up having to go on the site,
make the sale myself. Of course my loss was considerably more, than if the Stop worked properly.

Klaus
Guest
Klaus

Hi Tom
It would be helpful if you explained how your stop loss method (?) didn’t work and were thus worthless.
Thanks

alanh
Member
👍4086

I would assume that the SP gapped past his stop…..generally a stop will only activate at the exact price/% you enter. You need a different type of stop called a stop limit to catch this. But even this isnt 100% failsafe. As far as Im aware, only a market order will catch ‘any price’.

marypaananen
Irregular
👍8
marypaananen

Great Post! I think I’ll build/use some of these strategies into my trading platform. Thanks a bunch.

Klaus
Guest
Klaus

It’s intuitively obvious that applying stop-loss strategy to momentum investing and the boys who produced “Taming Momentum Crashes: A Simple Stop-loss Strategy” had fun showing it mathematically. Applying this investment method to upper and lower deciles presents a practical problem. There are 1000s of companies and so, the method would require to buy and short 100s of stocks. I wonder if the outcome would change significantly if buying and selling were limited to the 10 best-performing and the 10 worst performers, limiting the buying and selling to 20, which, at some weighted approach would also limit each buy and short… Read more »

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fabian
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fabian

Klaus, I got had with this stop loss program. Fortunately it’s cheap $ 60 for two years. Basically, they promote a “smart” stop loss strategy. It applies a stop loss on each stock in the system based on the stock’s volatility. That makes sense. 20% is a big drop for a WalMart but only part of the fun for a TSLA. I agree with the principle. But where I got pissed off is the way they lure you in. As soon as you sign up, they propose their “pro” version that’s $ 200 a year. If you don’t subscribe to… Read more »

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schonfeld
Irregular
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schonfeld

Thanks, Fabian.
It is not clear if you’re referring to Dr. Richard Smith’s Tradestops.com. If you are, shame on S&A.

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fabian
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fabian

Hello Klaus, yes I refer to Smith’s Tradestops.com.

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Dr. Mike
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Dr. Mike

Dr. Richard Smith invented Tradestops.com. I’m a subscriber at the pro level and it is a valuable tool to monitor stop losses and re-entry points. It’s all automatic, with e-mail notifications. Much simpler than trying to keep up with it on a spreadsheet.

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schonfeld
Irregular
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schonfeld

Thanks for your vindication of Tradestops.com.
I’ve tinkered with Excel for some time now and have yet to come up with a practical method and so, I’m getting closer and closer to signing up.

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Joan M
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Joan M

Many brokerage firms have such alert services free to their customers. You can place trailing stop orders, or you can request an email when your stop has been triggered and make a decision at that time.

Dr ELloyd DOugherty
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Dr ELloyd DOugherty

I never use stop loss settings. I am on the market every day and if a move down occurs, I can initiate a sale. Thereby I avoid the trap that I have been bitten by a few times — particularly in Canada. The guys at the trader desk- (a euphemism) – plunged the price down to my stop, took my stock and raised the price back to the previous level. I believe that shades of this behavior are SOP — to be avoided

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Gui_
Member
👍778
Gui_

Dr. ELloyd,

I heartily concur, especially when trading with any weight.

schonfeld
Irregular
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schonfeld

Thanks for the post. I think that this is how S&A essentially promote Dr. Smith’s Tradestops.com and it is a reasonable argument. Whether it’s true can’t be proven, at least not easily.

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Tom Coleman
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Tom Coleman

Use hidden stops that the market makers won’t see until the stop is triggered.

alanh
Member
👍4086

Reds under the bed !! With the trillions that are being traded, do you seriously imagine the MM’s have their beady eye on your $100

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Rusty Brown in Canada
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Rusty Brown in Canada

Something similar happened to me, and I was working at a major stock exchange here in Canada at the time. Sold my modest holdings “at the market” and watched as the price dropped a fraction right in front of me on my screen. Then my trade went through. Then the price popped back up to where it had originally been. I only lost a few bucks on a small trade, but it sure looked deliberate to me. I thought the whole thing was hilarious.

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schonfeld
Irregular
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schonfeld

Benny
I tend to agree with you; however, it wouldn’t be eyes, beady or otherwise, but simple, tireless software that could detect and somehow act on disclosed stops.

alanh
Member
👍4086

Rusty: I have no doubt Mr Software IS watching. But whats to watch? Most people stick their stop in at some nice round number (a proven fact). A computer could easily calc this for any trade. But as no 2 people buy at the same price, your 10% isnt the same price as anyone elses stop…..(although it does give a broad range). Enter the trailing stop !! This makes life v simple. If people use a 10% trailing stop and the price moves up 10%, then all the stops are aligned at the same price….whammo for a temp 11% drop… Read more »

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samshoe
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samshoe

Benny: Thank you for clarifying the effect of a 10% trailing stop: that it lines up all other 10% trailers after a greater than 10% increase in the stock. So I’m thinking, the greater the trailing % value, the less likely a “purposeful” sell-off will be to trip my stop loss. That is, knocking a stock’s price down 20%, 30%, or even 50% in order to grab shares on the cheap gets expensive fast on the short side. And a bounce back gets less and less likely. With this in mind, I’m considering how to navigate the volatility in some… Read more »

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alanh
Member
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Samshoe: There is no ‘right’ stop or trailing stop. Every stock, sector, market, moves differently depending on moment to moment ‘news’. Perhaps more importantly, all have a natural trading whipsaw. So, for simplicity, take the Dow……it tends to move 200pts up and down on a normal day……the Dax is much the same and UK is about 60pts pd. But lets say the difference between the open and close is only 100pts. So where do you set your stop? If you set it at 100pts and just leave it, its guaranteed that at some point in the day you will get… Read more »

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modernrock
Irregular
👍236

This appears to be SPAM SPAM SPAM

schonfeld
Irregular
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schonfeld

What appears to be SPAM?

barndoor
Member
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barndoor

hmm…Stop loss (traditional) I got.
What’s a trailing stop loss ?

jyoung0071
Member
👍548
jyoung0071

As the price of a stock increases, adjust the stop price upwards to maintain the stop price at a constant ratio to the current price, not the original cost of the stock. But do not adjust the stop price down, when the stock drops in price.

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Rusty Brown in Canada
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Rusty Brown in Canada

Well said!

jzjinvestor
Member
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jzjinvestor

Paul,

Trailing stop loss is setting your acceptable % lose on a position that stays the same as the position’s value increases, but “locks” on down turns. If exceeded, it sells but if the stop is not met, and the position’s value continues an upturn, it waits until the former value is reached to begin “trailing”.

Think of it as an elevator going up in a building that is programed to never let the elevator fall more than one floor before making everyone exit!

Al
Guest
Al

I have not done it, but a person should be able to set up trailing stop prices in google docs using googlefinance Place help google finance in a search box for more info. If done on the high price after a buy (which is less than a year ago), will likely need to create an “if” statement. I am sure someone on this board could set up a sample and give a link to his/her sample.

sportsbiz
Member
👍19

I’ve not tried to do what you’re suggesting but you should be able to do it with your broker if you want to trigger the sale automatically. I know both Etrade and Schwab allow you to enter trailing stop loss sale orders, which when the stop loss is hit become market orders. That, of course, is something to look out for in the case of thinly traded stocks or stocks which carry wide spreads between bid and ask prices as you will likely get taken out at an artificial low. Still, if you can’t watch the tape all the time… Read more »

Al
Guest
Al

I should have given the following links for information:
https://support.google.com/docs/table/25273?hl=en
https://support.google.com/docs/answer/3093281?rd=1
Excel has a good function help section. I am assuming most of the functions in excel will work in Google Docs. If not check:
https://support.google.com/docs/search?q=if+function

toff
Member
👍73
toff

Interactive Brokers offers a trailing stop type. It works quite well. They assured me the stop was not entered into the market until it became an active sell order. I think they may use the information on trailing stops internally though. Reassuring to see the 20% I’ve gravitated to is actually pretty much the best. I think 15% would play out better for less-volatile large caps, and 25% better for miners and other more-volatile species.

schonfeld
Irregular
👍0
schonfeld

So long as IB don’t play the game to which Dr ELloyd DOugherty refers above, all is well. Picking the “right” percentage is of course a refinement where the mathematics and references of the original piece would come in handy (they seem to range from 7% to 20% and I agree that 25% or even more could apply to miners etc).

alanh
Member
👍4086

Tosh ! While Im grateful to the guest author for their time….the whole idea of stop losses is a generalisation. It will not save you from a bio binary event…..but it will get you out at the worst price for a blue chip. If you have truly done you DD and you believe in the company/product, its far better to double down. Buy when theres blood on the streets. If you havent done your DD….better never to have bought. Stops are a traders game not a long strategy.

lightcc
Member
👍0
lightcc

I agree to some extent on individual stocks, especially with certain investment strategies (breakout new companies especially) – but I’m not sure it’s correct to characterize a stop loss as “not saving you” from binary events. It would be better to say that binary events can cause a stock to gap past your stop loss and thus you may fill at substantially past your stop loss value. Obviously in small caps these events can cause huge 50%+ gaps at times, but generally indexes and blue-chips will not gap anywhere near that much. However, that doesn’t mean a stop loss will… Read more »

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fabian
Guest
fabian

This article refers to stop loss in a momentum strategy not in a blue chip strategy. Take NFLX last week for instance, Icahn sells and you’ve a gap down at the open. For blue chips you’d better follow Buffet, Graham or others “blood in the streets” aficionados.

Mason
Guest
Mason

I am curious about reccomendation #3. “3.Sell your investment if at the monthly evaluation date the trailing stop-loss level of 20% has been exceeded” Does this mean you should sell on your eval date if the TSL level was reached at ANY point in the month, or only if the current price on the eval date is below the TSL level?

Slick Rick
Guest
Slick Rick

You can’t put stop losses on OTC stocks, but with stocks like TPIV, AVXL and SNGX why would you want to?

Gui_
Member
👍778
Gui_

Ah, a jbem fan.

john
Guest
john

I set up my portfolio in Yahoo Finance, one of their options is a “low limit” where you can designate a low price to look at the position again. For instance, I use 10% less than the price I paid as my initial low limit and will consider selling then. If a stock price rises, I move my low limit higher to stay in the same 10%range, that way I don’t follow a stock way down.
this article was timely for me since I was interested in hearing how other people here dealt with losses but never asked the question.

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Gary Fox
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Gary Fox

Schwab Streetsmart Edge can *definitely* do trailing stops (or traditional stops, or conditional sales – “If SPY declines/increases by XX $/%, then buy/sell symbol XYZ.” I’ve not personally done any stops, being mostly a core ETF holding + dividend reinvestment investor-type guy, but in the past have done conditional sales. Schwab reps will talk the uninitiated through setting up conditional sales (or trailing stops or whatever) at no charge. Most of what Schwab has, Fidelity has too, so would be shocked to learn that Fid didn’t have the same service(s). Tom (comment #1 on this post), would you mind your… Read more »

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lightcc
Member
👍0
lightcc

I’m completely confused by recommendation step #2 on how to implement a stop loss – it seems like he is recommending to only check whether you met your stop loss once per month, at the end of the month? He says not to check daily because you may get stopped out by volatility? That is exactly the point of why 15 and 20% trailing stops outperformed 5% in the one study! I also agree with all the comments that you should adjust per stock based on volitility (i.e. the one study that found 15-20% trailing was best was using stocks… Read more »

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Tim
Guest

Thanks for all the good comments. I do not use the stop loss functions offered by my broker. As some of you already mentioned who knows what happens there behind the scenes. I have a spreadsheet that imports prices from Yahoo finance that I look at once a day which is good enough for me. Also I do not look at stop losses daily but weekly, if a company is not undervalued any more but has good upwards share price momentum. For the remaining stop losses I only look on a monthly basis. If you look daily normal price volatility… Read more »

schonfeld
Irregular
👍0
schonfeld

Tim
A common trailing stop lost percentage is 15-20%, hardly normal volatility. Even the lowest percentage in the research paper (7%) wouldn’t be normal volatility. But, hey, whatever works for you.

Tim
Guest

Klaus thanks for your comment. What I meant was that volatility around the stop loss point, over it and then under it. To avoid this I look at the level once a month and if the trailing loss is more than 20% I sell if not I hold. This also means that the loss may be more than 20% but that’s okay with me, it does not happen often funny enough. But as you said its a personal thing that each investor must find what works for him. The most important thing with a trailing stop loss is that it… Read more »

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Az Day
Guest
Az Day

Tim , can you tell me if this strategy would work on a non- Direct Market Access platform, as the spreads on trades that these platforms have, are generally were the clients have to wait it out, until the price works in the clients’ favour. Therefore a TSL must include the spread these non DMAs use. In other words, are spreads a back door for the platform provider to use at their own discretion to seek out the volumes on buy/sell positions. Should i just use DMA where the provider allows me to trade directly with the market , and… Read more »

Dee W.
Guest
Dee W.

I use text alerts from my brokerage for all of my holdings to follow stop loss, trailing stop losses and utilize other indices to help me make individual decisions in whether I implement such strategy as an auto sell. Auto sells have hurt the market in the past.. I also can look at this info, at glance, at yahoo finance. It’s not hard unless you have thousands of different companies you invest in. Happy investing. Dee

Green Lantern
Guest
Green Lantern

Fidelity and OptionsXpress (now owned by Schwab) both definitely offer automated trailing stops, and Vanguard Brokerage definitely does not (have accounts with all). I don’t know whether my stops are visible to the market makers or not. Is there a way to tell, other than calling and asking and hoping that whoever you talk to knows what they’re talking about and tells you the truth?

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alanh
Member
👍4086

GL: Id be really careful using stops on Bio (it may work for other sectors). My experience was that the stox are so volatile that they swing 20% in a day, so you always get stopped out at the worst possible price only to see them come back next day.

D
Guest
D

A great article. Trailing stops are the way to go, unless you monitor the market closely. Taking the emotion out of it is important — and that’s easier when the rules are backed by solid quantitative research.

Douglas Powell
Guest
Douglas Powell

Okay, in the OMX 30 study… These are large cap stocks(assume beta =1) (1 wk SD=15% and 6mo SD=approx 20%). Is there any indication from the research about how to adjust stop levels in harmony with underlying position volatility? This “Optimal Trailing Stop” idea is very enticing, but there must be a way to scale it up into higher beta values and down into smaller betas.