You should have linked to that article then, because what you have shared is not an academic study and is self-published.
Why should you use a stop loss order?
- Thread starter Rambo35
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so sorry, you are not a bond student, therefore you have no access to the original academic study, only the public abstract is available for free, but you can see it is listed as scholarly publication from the bond staff, here a short snippet of the very interesting conclusio:
--
In no case tested does the use of stops either
significantly reduce risk or significantly increase returns.
– both of which should be the primary goals of every
trader.
Many traders may feel uncomfortable with the idea of
not using stops. However, from conducting this
study on a variety of trading systems, one observation is
crystal clear: If a trading strategy has a positive
expectation, then the use of stops will only serve
to degrade performance.
The methodology used within this study can easily be ported
to any individual traders strategy.
In the specific case studied in this paper,
the results suggest that stops degrade long-term
portfolio performance.
--
other scholarly publications:
Developing high frequency foreign exchange trading systems
Designing short term trading systems with artificial neural networks
--
In no case tested does the use of stops either
significantly reduce risk or significantly increase returns.
– both of which should be the primary goals of every
trader.
Many traders may feel uncomfortable with the idea of
not using stops. However, from conducting this
study on a variety of trading systems, one observation is
crystal clear: If a trading strategy has a positive
expectation, then the use of stops will only serve
to degrade performance.
The methodology used within this study can easily be ported
to any individual traders strategy.
In the specific case studied in this paper,
the results suggest that stops degrade long-term
portfolio performance.
--
other scholarly publications:
Developing high frequency foreign exchange trading systems
Designing short term trading systems with artificial neural networks
Last edited:
Actually, the whole article is publicly available:
http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1086&context=infotech_pubs
http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1086&context=infotech_pubs
thats fine! long time ago i was in contact with the bond staff. should look around for new or updated papers.
I think using stop loss order here is of maximum importance. It is said forex trading is risky but yet, there is a lot the trader could do to manage the risk. Setting stop loss defines the maximum risk an open position is vulnerable to. This way if the market goes against you, the stop loss triggers when market prices get to that negative point you can't afford any more losses.
The article is superficial at best. There are two serious issues here:
1. The main one is that the author gives no explanation as to why he tests only long entries/exits. As we can see, the ASX200 was in a bullish rally during the period from April 2000 through December 2007:
Of course, why would we need in a stop-loss to trade long entries in a bullish market?
2. Only two stop-loss techniques are studied. One (money management stop) is a very poor choice - many authors do not recommend using it under any circumstances. The other (ATR) is a sound one, but the author forgets to describe the ATR period used in the test. Support/resistance stop-loss used by many traders (include me) is not studied in this article.
You are right, study is not complete, but i think the statement behind is: Ask, test and maintain your sl, is the "old school" sl choice always the right/best choice? Look around and open your minds, maybe there are newer technics available, because sl is always the hard way to realize the loss. candlesticks are used +100 years before moving averages are created, so trading technics must be also improved day by day.
ps: sl means, tp, ts too!
ps: sl means, tp, ts too!
I still believe in stop losses, but not the automatic kind. Rather than using automatic stop losses, I set up price alerts for the securities I bought (and for those I plan to buy). For example, if I buy XYZ stock at $20 per share, I might set a price alert at $19 (5% loss), and also at $25 (25% gain).
A stop loss order helps limit potential losses by automatically closing a trade at a predefined price. It protects your capital, reduces emotional decision-making, and enforces discipline. Using stop losses allows traders to manage risk effectively, especially in volatile markets, and helps maintain consistency in a long-term trading strategy.
I think stop loss orders are important because they help limit losses when the market moves against your position. The placement should depend on your strategy and market conditions, not random distances. Although stop losses cannot prevent every loss due to slippage or gaps, they are a useful part of managing trading risk.
Without a stop loss, you are relying solely on your account's resilience; position sizing directly affects this resilience and your vulnerability to a margin call. Larger position sizes entail higher risk and lower account resilience. Trading without a stop loss is extremely risky. In essence, a stop loss serves as a tool for traders to manage risk, which should be combined with selecting an appropriate position size based on one's risk tolerance.
One thing people often overlook is that a stop loss also helps with position sizing. If you know where your trade idea becomes invalid, you can calculate how much to risk before entering. Of course, stops aren't guaranteed to execute at the exact price, especially during major news releases or liquidity gaps. That's another reason why leverage matters just as much as the stop itself.
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