{"id":280,"date":"2011-02-20T07:48:48","date_gmt":"2011-02-20T06:48:48","guid":{"rendered":"http:\/\/cerezo.name\/blog\/?p=280"},"modified":"2024-10-14T14:30:31","modified_gmt":"2024-10-14T12:30:31","slug":"all-in-blind-do-not-stop-loss","status":"publish","type":"post","link":"http:\/\/cerezo.name\/blog\/2011\/02\/20\/all-in-blind-do-not-stop-loss\/","title":{"rendered":"All-in Blind: Stop-Loss Considered Harmful"},"content":{"rendered":"<p><a href=\"http:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=1123362\" class=\"broken_link\"><img loading=\"lazy\" class=\"aligncenter size-full wp-image-346\" title=\"Simulation of the impact of stop-losses on returns (MSFT stock)\" src=\"http:\/\/cerezo.name\/blog\/wp-content\/uploads\/2011\/02\/stoplossMSFT.gif\" alt=\"Simulation of the impact of stop-losses on returns (MSFT stock)\" width=\"566\" height=\"262\" srcset=\"http:\/\/cerezo.name\/blog\/wp-content\/uploads\/2011\/02\/stoplossMSFT.gif 566w, http:\/\/cerezo.name\/blog\/wp-content\/uploads\/2011\/02\/stoplossMSFT-300x138.gif 300w\" sizes=\"(max-width: 566px) 100vw, 566px\"><\/a><\/p>\n<p style=\"text-align: justify;\">In the investing world, <a href=\"http:\/\/www.investopedia.com\/articles\/stocks\/09\/use-stop-loss.asp\" target=\"_blank\" rel=\"noopener\" class=\"broken_link\">stop-loss orders<\/a> are the most used risk management device: so simple and intuitive that they confuse reason and common sense. But the hidden costs of stop-losses alter the shape of expected future return distributions, resulting in no inherent edge to be had in using neither stop-losses nor profit-taking stops, or any combination of them; and as volatility of the underlying asset\u2019s returns is increased, the impact of stop-losses increase as well, generating higher portfolio volatility. Precisely, the opposite of what is intended: the perceived benefits of the stop-loss are largely balanced out by the hidden costs.<\/p>\n<p style=\"text-align: justify;\">Note: Trading desks may profit from large quantities of sell orders from client\u2019s stop-loss\/profit-taking orders known in advance, so don\u2019t expect them to disappear anytime soon.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the investing world, stop-loss orders are the most used risk management device: so simple and intuitive that they confuse reason and common sense. But the hidden costs of stop-losses alter the shape of expected future return distributions, resulting in no inherent edge to be had in using neither stop-losses nor profit-taking stops, or&nbsp;any&nbsp;[\u2026]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"wp_typography_post_enhancements_disabled":false,"ngg_post_thumbnail":0},"categories":[14],"tags":[],"_links":{"self":[{"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/posts\/280"}],"collection":[{"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/comments?post=280"}],"version-history":[{"count":13,"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/posts\/280\/revisions"}],"predecessor-version":[{"id":1677,"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/posts\/280\/revisions\/1677"}],"wp:attachment":[{"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/media?parent=280"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/categories?post=280"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/cerezo.name\/blog\/wp-json\/wp\/v2\/tags?post=280"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}