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  1. Default Do Stop Losses Really Work?

    1) Yes. But most of us are long-term traders rather than true investors who hold to receive income.
    2) Yes. But the ASX opens with an "auction" so the trader can be confident of at least getting the open price
    3) Far from it. In a weak market, price is likely to gap down; so the Open will be lower than the previous Close; and the previous Close will be lower than the actual stop level.

    I will ask Bruce to review this thread and correct any misinterpretations from me. Far better you get it from the horse's mouth.

  2. Default

    Porter Stansberry, in his S&A Digest, published results of an analysis of stops he commissioned. This study looked at trailing stops, not the ordinary stops discussed by Vanstone. Trailing stops under 15% produced worse results than no stops - consistent with Vanstone. But results got progressively better than no stops when trailing stops above 15% were used, peaking at about 34%. If this is valid, Vanstone didn't go far enough in testing stops, and failed to examine trailing stops.

    Stansberry's work is copyrighted, so I can't reproduce it here. You can get permission at Stansberry & Associates, 1217 Saint Paul Street, Baltimore, MD 21202 or www.stansberryresearch.com.

  3. Default

    This looks like an interesting exercise, but I would argue that the simple trading system used as an example has a built in stop loss already, but I suppose it depends on what you mean by a stop loss. I don't see how the moving average is not, in itself, both an initial and a trailing stop. The trade is going to exit when the price goes through it. The logic of the trade is presumably that if it stays above the moving average then that is bullish.

    If you add an additional stop loss rule, then you are interfering with the logic of the trade, so it's not surprising that it gives a worse result.

  4. Default

    An excellent discussion.

    The posts by the other contributors are quite revealing and I commend them for their thoughts.

    I must commend Ivan on his comments re liquidity about stops and falling outside the gaps. Although what Ivan states is quite correct it may also depend upon your broker IMO as to whether your stops get filled in GAP situations.

    While stops are an important tool it can be used with sufficient clout by the larger Trader to take a position in a Company by the very nature of calculating where stops would be placed (as in Ivans example of using percentages) and triggering those stops. Could this be construed that serious money wants that stock?

    Guys a great topic for discussion and I look forward to it continuing.

    Any chance of putting a couple of these questions together Colin and sending them off to Dr Vanstone for his comments?
    Or maybe inviting him to join the discussion for a week?

    Again congrats for opening pandora's box and mixing the real world with this excellent site.

  5. Default


    I'm very disappointed with that "research".
    The wrongly named "no stop" strategy has in fact a sell signal which is a trailing stop strategy. A real no stop strategy would be the value of the trades at the end of the testing period. I would like to see the daily mean returns and APRs of a real no-stop strategy compared to any stop strategy.

    The only conclusion that can be drawn from the results is that the variable % stop losses have not improved the results of the original 60d ema trailing stop strategy.

 

 

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