PT  - JOURNAL ARTICLE
AU  - Sarah Marietta Tooth
TI  - On the Efficacy of Stop-Loss Strategies
AID  - 10.3905/jot.2014.9.4.100
DP  - 2014 Sep 30
TA  - The Journal of Trading
PG  - 100--107
VI  - 9
IP  - 4
4099  - https://pm-research.com/content/9/4/100.short
4100  - https://pm-research.com/content/9/4/100.full
AB  - 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.TOPICS: Security analysis and valuation, quantitative methods