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Article

On the Efficacy of Stop-Loss Strategies

Sarah Marietta Tooth
The Journal of Trading Fall 2014, 9 (4) 100-107; DOI: https://doi.org/10.3905/jot.2014.9.4.100
Sarah Marietta Tooth
is a Ph.D. student in the Department of Statistics at Rice University in Houston, TX. smtooch@rice.edu
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Abstract

Standing stop orders, or “stop-losses,” automatically sell out of equity positions to prevent capital losses from exceeding a predetermined threshold. This practice is commonly believed to not only limit downside, but also contribute to long-term portfolio growth. We test this theory by applying stop-losses to the MaxMeasures portfolio selection strategy, and to a bootstrapped backtest of arbitrary strategies on the S&P500 between 1969 and 2012. We find these simplistic stop-losses to be ineffective and generally detrimental to long-term performance.

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The Journal of Trading: 9 (4)
The Journal of Trading
Vol. 9, Issue 4
Fall 2014
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On the Efficacy of Stop-Loss Strategies
Sarah Marietta Tooth
The Journal of Trading Sep 2014, 9 (4) 100-107; DOI: 10.3905/jot.2014.9.4.100

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On the Efficacy of Stop-Loss Strategies
Sarah Marietta Tooth
The Journal of Trading Sep 2014, 9 (4) 100-107; DOI: 10.3905/jot.2014.9.4.100
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  • Article
    • Abstract
    • STOP-LOSS ON MAXMEASURES
    • SIMULATED STOP-LOSS
    • DISCUSSION
    • CONCLUSION
    • REFERENCES
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