is there a statistical disadvantage of using stop losses ?

[Attila the trader]

is there a statistical disadvantage of using stop losses ?

 

[mpups]

is there a statistical disadvantage of using stop losses ?

when backtesting a system you will find out ?

 

[Pat494]

I have tried dispensing with stop losses and always came unstuck.
They are a must to all.

 

[bluebellmk]

I think that a complete emergency stop is essential, but rarely triggered. I tend to not use stops which are likely to be hit and would prefer averaging down then taking a scratch.

Can come unstuck when averaging down although it is not common,I have only had my pants pulled down once this year doing that hence a complete emergency one some distance away from price.

 

[Attila the trader]

The main disadvantage of using stop loss is that it can get activated by short-term fluctuations in stock price. Remember the key point that while choosing a stop loss is that it should allow the stock to fluctuate day-to-day while preventing the downside risk as much as possible.

that was the main reason to lose trades in my previous strategy , the cliche story , stopped out early and then the market goes without you

 

[Attila the trader]

Probably, much depends on the chosen strategy and on how closely the market participant is engaged in trading. Because first of all, stop-loss is an insurance against loss of free margin, against loss of a significant part of capital. But many traders face some problems exactly in the case when they can not correctly determine when and at what level it is necessary to set the stop-loss. And this sometimes leads to the fact that a person in general can not achieve any significant results, can not go beyond the standards, etc. And in this case, the person already needs to figure out for himself what prevents him and what he should do in order to correct it.

how can one determine the best place for a sl , i use ATR and s and r ,

 

[Trader H.C.]

how can one determine the best place for a sl , i use ATR and s and r ,

I agree. Since the best place for a SL could change based on the volatility of the time.

 

[barjon]

that was the main reason to lose trades in my previous strategy , the cliche story , stopped out early and then the market goes without you

yeah, that might happen 9 times out of 10, but the one time it doesn’t and just keeps on and on going against you is enough to see your account blown or, at best, many weeks hard fought gains disappear. So a statistic that says a stop loss only works out 10% of the time is meaningless.

 

[trendie]

is there a statistical disadvantage of using stop losses ?

that was the main reason to lose trades in my previous strategy , the cliche story , stopped out early and then the market goes without you

Did you work out how far from your stop-loss the market went before it eventually went profitable?
If the move was small, maybe you can go back and re-test with an adjusted SL, and see where you are with it.
If the moves are huge, and varied, maybe its not your SL, but maybe your initial analysis and entry were flawed, and thus the SL bears no relation to anything?!

As long as you can find a consistent pattern, you can fix it. If there is no pattern, maybe the process is flawed.

SLs are certainly a conundrum.
My preference is to take the hit, and just re-enter, but with an adjusted SL in light of the new info, of the market move. But, a couple of losses, and I withdraw from that market, and look afresh.
(I had a habit of revenge-trading, so learnt to switch to a fresh chart to avoid this)
I have tried other techniques, but you're essentially swapping a bigger SL for the emotional comfort of not concluding in a loss so often.

Do you trade multiple markets, or just one?
What are you exploring at the moment to address this?
Hope you find a resolution to this,

EDIT: Stop Losses are there to protect you from yourself!

 

[Attila the trader]

Did you work out how far from your stop-loss the market went before it eventually went profitable?
If the move was small, maybe you can go back and re-test with an adjusted SL, and see where you are with it.
If the moves are huge, and varied, maybe its not your SL, but maybe your initial analysis and entry were flawed, and thus the SL bears no relation to anything?!

As long as you can find a consistent pattern, you can fix it. If there is no pattern, maybe the process is flawed.

SLs are certainly a conundrum.
My preference is to take the hit, and just re-enter, but with an adjusted SL in light of the new info, of the market move. But, a couple of losses, and I withdraw from that market, and look afresh.
(I had a habit of revenge-trading, so learnt to switch to a fresh chart to avoid this)
I have tried other techniques, but you're essentially swapping a bigger SL for the emotional comfort of not concluding in a loss so often.

Do you trade multiple markets, or just one?
What are you exploring at the moment to address this?
Hope you find a resolution to this,

EDIT: Stop Losses are there to protect you from yourself!

i haven't checked how much the market moves after hitting the sl i will after you pointed it out , i only trade small cap (not penny ) equities swing for about 2 weeks (unless stopped out ) i decided to trader bigger cap less volatile stocks with larger sl (around the daily ATR ) to address this and im thinking of dividing my capital in to smaller positions per trade so i can be more liberal with the sl giving the trade room to breath for example i would have 4 positions worth 25 % with a sl round -10%
thanks (non native speaker )

 

[Attila the trader]

yeah, that might happen 9 times out of 10, but the one time it doesn’t and just keeps on and on going against you is enough to see your account blown or, at best, many weeks hard fought gains disappear. So a statistic that says a stop loss only works out 10% of the time is meaningless.

yeah thats true but my account gets slowly eroded

 

[KarrosAst]

Placing a stop loss is useful as general trading strategy, while as stated above the main disadvantage is on short term sudden price moves (spikes) where once the price of a stop loss reached, then the trade/position will close. Of course, after the spike market can move in your trade's favor (bad luck), but there is also a chance that the price may continue to move against your initial trade (lucky that stop loss got triggered). I think stop loss is generally helpful, but for long terms trades and goals. Not for scalping strategies and short terms trades.

 

[NVP]

are we really discussing here not having a stop loss .....?

 

[Attila the trader]

Placing a stop loss is useful as general trading strategy, while as stated above the main disadvantage is on short term sudden price moves (spikes) where once the price of a stop loss reached, then the trade/position will close. Of course, after the spike market can move in your trade's favor (bad luck), but there is also a chance that the price may continue to move against your initial trade (lucky that stop loss got triggered). I think stop loss is generally helpful, but for long terms trades and goals. Not for scalping strategies and short terms trades.

yeah it should be , place away from the range of sudden spikes , i think its mandatory to protect yourself from account destroying losses

 

[Attila the trader]

are we really discussing here not having a stop loss .....?

Not quite , im more concerned about the location of the sl , so that it dose not get hit so often

 

[Attila the trader]

You shouldn't put a stop loss when the chart has a clear technical picture. But what to do when there are fundamental grounds for entering a deal, and the chart isn't informative at all?
Even if there are any levels on the chart, there isn't always reason to believe that the price will not catch them before forming a full-fledged wave. And such situations, alas, are quite numerous.
But usually each situation is individual because of the variety of factors affecting the price, so it is often impossible to collect enough sample volume with matching parameters.
So the conclusion that I can offer is as follows: If the grounds for opening the transaction are exclusively fundamental, it means that the closing of the position should take place only on the basis of the development of the situation without a rigid binding to the price levels. Stop loss on price in this situation isn't always appropriate.
However, trading discipline tells us that it is still necessary to limit losses. Risk management is carried out not at the expense of a specific price level for withdrawal, but at the expense of the amount of funds invested in each transaction.

what if its a mechanical strategy without involving fundamentals