Stop Loss Strategy VS Buy & Hold? (11 year study)

What is the best stop loss strategy and how does is compare against a buy and hold strategy?

Which stop loss percentage is the best?

Is a trailing stop loss strategy better?

Well in this video we look at a research study which will help answer some of those questions.

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As a professional trader I have consumed hundreds of financial books and endured countless hours of self education. My hope is that this channel will reduce the learning curve duration of many aspiring traders by providing the key information in a concise and enjoyable manner.

[timlangford]

I realize the time period of the study (1998 to 2009) was not cherry-picked, but it included two of the largest draw-downs in history, with no long periods of trendless trading. That would greatly favor a stop loss system. They couldn't have picked a better "arbitrary" time period.

[tomb]

Hodling is truly a problem, and usually pushed by those who are stuck by it. I wish I would have put a stop loss on my TSLA purchase, because I have now been stuck in a loss position for a couple of years. It's not fun at all.

[colorado]

There are two problems I see with this strategy that are worth thinking about. One is that a lot the trades are short term trades which will be taxed at a higher rate and the taxes will compound with time. The second is that if you set a stop loss...at some point you have to get back in. If your plan is to get back in if the market reaches the stop loss value (like in this study) once you sell there is a very well get bounced in an out of the money multiple times in one day or week or month. This could result is losses do to stock liquidity problems or the exact timing of the trades. If you delay getting back in the market could recover a lot of territory quickly and you could loose money. The market normally goes up within 24 hours of a major dip. If you set the re entry point a few percentages above the exit point you will loos a few percentage points for each trade which will compound over time. If there was a way avoid downside risk entirely while keeping the upside....every day trader would be a millionaire by now. A 7% stop loss is better than your stock loosing 50%. However a 7% is very likely to trigger, and if you keep doing that you will end up down over 50%.

[infinityprodinc]

These are great videos! 10min long with great content and examples. Please continue with these videos. Thank you very much!!!!

[gagnepaingilly]

My portfolio for the past 30 years has always been self managed and I own 3 shares of Berkshire Hathaway Class A stock (BRK:A) which I bought in at about $17, 000 during the mid 90s, I’m currently liquidating some of these positions to incoporate new Gen. Stocks, but am I better off re-investing into Gold as it seems stocks are a little too unstable right now.

[drkrueger]

This was just what I needed! Great work. Thank you!

[gagangames]

I love your videos. Please make more video on what academic research say about various subject on equity

[cyberryderfx]

it’s a huge difference if you speak about SINGLE STOCKS or ETF for a SL. This wasn’t clearly mentioned, but it seems he speaks about single stocks

[Outshinedsg]

Could I make a video request? You've made a lot of great videos about topics related to risk management, trading strategy, psychology, position sizing and other aspects relating to the trading process. Would it be possible to make a video about asset selection and the research process to finding/choosing your investments? This is the part I'm struggling with right now. There are so many options out there, it feels overwhelming and it would be great to have some ideas on where to start or how to narrow things down. Thanks again for the great content!

[jimmyt]

Thanks for sharing this I was wondering about this a trailing stop loss vs buy and just hold

[bhavinvakil]

I think stop loss results also depends on the stock selection and the timing. We can't just rely on the stop loss on an overall basis....

[FrozenDoberman]

Certain traders use an index no-buy rule filter. During bear markets where the relevant indexes are trading below down-sloping 10 and/or 20-week EMA lines, normally profitable trading strategies have a much higher failure rate. Stop losses also more frequently get hit. In a bear market, they eventually get to all sectors. Even the standout 2022 leading energy sector was recently hit. This is why Dr. Chris Kacher discusses the importance of contextual factors in his book, and newsletters. Chris is currently either almost completely, or entirely in cash until a bull market eventually resumes. Even Nicolas Darvas stated that he was only able to achieve unusually large stock gains when the Dow Industrials index was strongly trending up between early 1958 to early 1960. Darvas dynamically responded by going to cash by 1960. Anecdotally, by trading using exclusively long positions, the market is only worth being involved with for circa a third of the time during the stage 2 phase.

[Outshinedsg]

Eye opening video. It's really helpful to cut away all the noise from various opinions and see scientifically-supported examples of what's optimal. Definitely feel like I need to be a little more active in managing this stuff (or else intentionally pick investments that do not require management)

[tonysilke]

80% equities 20% cash. I plan to take advantage of the s&p 500 as leading indicators predict above 10% rise by this year, my only issue is how to properly allocate a large stock/bond portfolio for substantial gains at minimum risk.

[FinancialWisdom]

My Brokerage Account (Interactive Brokers) - bit.ly/3UGvn1U

[coppcar]

Thank you. I needed this and it is superbly done.

[Biergeliebter]

I would like to see the results with ETFs. Since they tend to be less volatile I assume a smaller percentage stop loss would be the sweet spot.

[amazon]

The problem is, for stop loss strategy, it is easy to hit stop loss several times consecutively. For example, if you enter the market five times and each time hit 7.5% loss, you end up like 30% - 40% down in cash already.

[michaeljordana]

I don't know about stop-loss settings based on PERCENTAGES. The late Dr Van K Tharp -- a trading psychologist about whom you've done a couple of videos -- recommended basing them on AVERAGE TRUE RANGE (ATR). He suggested stop losses of 3 ATRs, with the idea that if an instrument moved that much against you, it was probably time to get out of it.

[carter]

Most difficult part about this current market environment for new investors, is filtering out the good from the bad. Just because a company is down 50%+, does not make it a sound investment. Do your OWN due diligence & invest in great companies or IFs/ETFs.