Stop Loss Strategy VS Buy & Hold? (11 year study)
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- เผยแพร่เมื่อ 12 พ.ค. 2024
- 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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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.
Ok how about 2019-2023? This shit happens all the time.
I would argue the Covid crash of 2020, the melt up of 2021, the bear market of 2022 and the subsequent recovery were all BIG moves, not trendless.
I came here to say the same thing. Buy and whole traditionally will have a positive game. Whether it's more or less than a 15% stop loss is not clear. Plus what's really important is not what you make but what you keep! Taxes will be much higher if you're buying and selling all the time. That needs to be factored in. Those are the two things to consider when looking at this video.
Not if it is IRA/Roth
@@timlangford8678 The Covid-Crash and Recovery took like 6 months total, with 5 months being the recovery. A stopp loss strategy would have missed out on big parts of the recovery there.
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.
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
True. I use small % stop losses for individual stocks. An ETF i would only stop loss for 20% + downwards movements
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.
Invest in real estate, ETFs and high-yield savings account.
Just buy Gold and protect your assets, the stock market is a rollercoaster.
The market is not necessarily a rollercoaster if you know your way around the market, there are various opportunities in the present market to accrue good profit, If you are not too savvy with the market, just buy and hold on strong companies with good earnings, or consult with advisors on ETFs and actively managed funds.
How do I reach out to a financial advisor, my portfolio has been struggling since 2022 and I’ve been holding on by the skin of my teeth.
Jessica Annabelle Rupp is the licensed advisor I use. Just research the name. You’d find necessary details to work with to set up an appointment
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%.
True. In all the bull market phases & developing economies, buy & hold has far outplayed the stop loss strategies. In fact the very reason many traders missed big bull runs in history in my country India is because they were traders seeking 20% return per year with 30% of the returns taxed while buy & hold investors could make 30% returns CAGR in long run with just 10% tax. this video is so untrue.
@@Vidyasagarbb30% returns on the long run are impossible. These numbers can be obtained for a couple of years but it is only exception. I agree however buy and hold is superior. Cutting your losses and letting your winners run like in this video is also a good idea. I hold my winners and sell my losers after 6 months of ownership.
@@Elaba_ well from investing, in long term many portfolio managers could go past 20%. So my point is still valid. But in keep booking profits and not sitting tight on stocks is trading. 20 to 30% post tax is as difficult from trading as investing. More over it needs lot of time. >20%Pre tax may still be possible. That’s my experience as well,. But with large sums
the second approach presented is total nonsense. buy and wait for your SL to get hit with no Take Profit. Insanity.
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!
Pls check dual momentum video. It will address ur concerns
This was just what I needed! Great work. Thank you!
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.
I believe that diversifying your investments is the safest way to handle it. One way to lessen the effects of a market crisis is to distribute investments over a variety of asset classes, such as international equities, bonds, and real estate. It's critical to look for expert advice.
Everyone has means and unique ways of operation, the point is ensuring you’re profitable, I’ve seen my $170k startup surpass a million and its been only eighteen months having an FA guide me on my investments. It’s a necessity going about the fin market if you want to be profitable nothing can match professionalism and experience.
Please can you leave the info of your lnvestment advsor here? I’m in dire need for one
Amber Dawn Brummit is the licensed coach I use. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible. I booked a call session with her.
I love your videos. Please make more video on what academic research say about various subject on equity
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.
Buying during a panic, selling during euphoria, and holding on when you are bored and just craving a little action. Investing is 5% intellect and 95% temperament.
The ability to predict the market is the most important skill a trader needs. This is the biggest lie in trading
@@billybrannon6394 managing your Trade Or Account is more important than forecasting the outcome of any trade.
@Gregory Feigenberg Thats why it’s important to trade with guidance and over some sort of speculations. since i started trading with ''Casey Allen Gray'' i have understood that strategy and time in the market beats alot of volatility. i am 25% up and still counting.
@Gregory Feigenberg You can look her up and drop a message for her through her webpage.
Thank you. I needed this and it is superbly done.
You're very welcome!
Thanks for sharing this I was wondering about this a trailing stop loss vs buy and just hold
Glad it was helpful!
These are great videos! 10min long with great content and examples. Please continue with these videos. Thank you very much!!!!
Glad you like them!
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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.
Thanks Michael
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.
Great Video, Just a question, Is there any specific criteria to select the stocks. Are they trending/sideways etc
I wonder what the results would be when using an ATR instead of a trailing percentage?
ATR works good on a horizontal VWAP
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....
Duh 😂
Thank you for the content. Very clear and direct. Do you place your trailing stops in the market, or keep track outside the market and place orders when the stop is passed? There seems to be a good deal of content advising not creating the stop loss orders in the market.
I use macd
Apologies if this is beginner question. What makes us believe that specific 11 years from the study indicate future performance and risk ratio?
Excelente gracias
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.
Best channel on stock market.
Thanks 👍
Great video but confused as earlier in video a 15% trailing stop was best at over 70% returns, yet at end was second to 20% trailing stop at around 20% returns?
Ya i also couldn't understand
Hi. I really enjoyed your video. If u don’t mind me asking what Trailing Stop Loss would you recommend for Crypto.. As my buy and hold policy sees in exactly the same predicament as described in here 🙏
I use the macd as per my bitcoin video
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)
Glad it was helpful!
A stop loss strategy is simply a tool that can have a high variance of outcome based on several factors and the skill of the user, and because the data variance have always exceeded more than a 20% difference both on the up and down side, you cannot explicitly state that usage is significantly beneficial to the user in relation to other strategies both in the short and long term trades. Usage of the tool is significantly advantageous if combined with other knowledge based tools on the data set being examined, because negative outcomes has a lower chance of occurring in connection to variance analysis for violating the likely movement of a valuation of an asset. Basically, you are now trying to statistically avoid negative out comes within one or two standard deviations of what is likely to occur.
I love your videos. Thank you.
You are so welcome!
I love the length of the video. I have watched it a few times trying to understand the two difference stop loss approaches and I don’t see the difference, what am I missing?
Excellent video. I wonder if it is possible to factor in drawdowns in such a study as they impact psychology and the traders ability to follow their rules consistently.
Thank you, excellent content time and again.
Thanks you Simmonds🙏
Thanks so many gems here
!!
Thank you
"Buy and hope" can make sense (at most) on mkt indexes (especially after strong corrections), not on specific stocks, where it can be suicidal. The best is just do automated hedging working on suitable instruments 🙂
I agree... 😉
Nice insights into this stop-loss strategy. One question remains open: of course, setting a TSL is easy, and prevents you from even more losses. But once the TSL is triggered, you have cash on the side line and the question pops up "when to buy"? It is very easy to miss the right time, just buying prices are above TSL trigger price. How to prevent that?
your videos offer the best trading course ever and are free, and to think a lot of people charge for trading coaching etc.......
Thanks 👍
Interesting... but what's the re-investment/re-entry rule? That makes all the difference. Don't get me wrong, that's also a problem for buy and hold, were you generally end up with you absolute max amount of capital invested just before downturns. Also, the described strategy is terrible in sideway markets.
Reinvestment/re-entry does not have to be the same stock or asset, it can be a different stock setting up appropriately so that you are constantly moving money into the right price action.
such studies should be done on lots of different equity lines to come up with a meaningful result. Otherwise the results may be affected by the known "over-fitting" issue. In other words the strategy may work good on this specific equity line but not on different ones
A very good and meaningful content, I seldomly used 5 % stop loss so this video teach new thing to me. Can you do video explaining the differences between trailing stop loss & traditional stop loss? And also can you make a video explaining more about market structure? Thank you
Differences between trailing stop loss & traditional stop loss: Trailing stop loss moves up with the price. Traditional stop loss will not move and stay at the price entered.
J
Great video!
Sir, you are amazing! Useful info, perfect delivery. Keep it up please!
So nice of you
Thanks for the video! Does the stop loss principle apply to ETFs? Or are they more of a buy and hold product?
No, it would be very different. That's actually the reason I favor ETFs because they sort of have a built in stop loss. One company can go to near zero and stay there. A group of 100 companies generally doesn't do that. The one company within the 100 that did that would be eliminated from the index.
Your vdo are fun to learn. Thank you so much
It's my pleasure
Thank you for this great content. I’m a novice trader. When utilizing trailing stop losses with swing trading, do you set your chosen stop loss percentage below the days closing price? If not, what figure should be used to set the stop loss? Thank you.
Thanks! 🙏
Excellent video - Your analysis re % stop loss ties into my own analysis which was based on reviewing actual drawdowns on various stocks. I had previously used volatility.
Great
Very insightful video.
Glad you think so!
Just stumbled over your channel and after a few videos I‘m a fan already. Very solid and professional content that let‘s viewers take steps to get better in their investing or trading results. Thank you!
Welcome aboard!
A word of caution though; be very sceptical about all financial content on the Internet. This random TH-cam-channel claims stop loss orders are clearly much better than buy and hold, yet Warran Buffet, considered the greatest investor of all time, famously subscribes to a buy and hold. At the end of the day, it makes more sense to listen to people who have actually proven their insights by becoming billionares through investing rather than most financial content creators on TH-cam who can't beat the marked consistently like most professional investors (really by definition when you think about it, most people can't beat the average).
No one, absolutely no one ever, have been able to consistently make returns even at 30%+ per year through investing in the stock marked without inside information. That's vital context to know when exploring financial content on TH-cam.
@@theWebWizrd sometimes logic speaks louder.
I have been in the markets for 20 plus years, and I have watched 1000's of trading videos, read 100s of books, and the MACD trading example for exits is FUCKING AMAZING! Thanks! Your other content is gobsmacking as well.
Thanks Sheldon, glad people are finding value...
@@FinancialWisdom I am joining your group today ;)
Hi, I am new to trading, I think your videos are awesome, I am learning so much from them.
Thank you very much.
I have a question, when you talk about my stop loss should be 20% of the amount of money I am trading?
Sorry for the question.
A 10% stop loss is based on the position not the overall equity. I would risk up to 1.5% of equity on one position.
@@FinancialWisdom Can you give an example? When you don't give an example all your explanations are worth nothing to be honest. Thanks.
It is hard to make a definitive comment based on the abstract alone but 11 years is actually the size of the data available which is already too short for any financial study. The holding periods matter a lot and they are only 3 months long. This is not a buy and hold strategy because BH is by definition a long term strategy (the holding period itself should be 10+ years). Also, in real life the portfolio of a buy and hold investor differ from the portfolio of a trader. And finally, tax and transaction costs were note mentioned. They also differ from one strategy to the other.
it doesnt work for blue chips. If i had done this for my macdonalds or unp stock that i hold for retirement, i woulda lost these positions and had to come back at higher prices.
I like when my stoploss is hit during a brief flash down during a bull run.
Thanks for the insight. Just to be sure I understand - a "trailing stop-loss" is where you keep adjusting the stop price as the stock moves up?
Correct
Fantastic video !
There are many factors in trading which make even Buy&Hold capable of up to 60% profit per year. Things like building a position, partial or full profit targets, receiving dividends, selling covered calls and puts, etc. I mostly Buy&Hold, and work diligently at it every day to try for the goal of achieving a fairly steady rate of growth. And I plot a daily graph which includes the cash and positions value of 4 trading accounts, along with the mathematical best fit linear regression line as a measure of progress. This works remarkably well for me without using any stop losses. I do try to constantly veer into good timely stocks, and take profits when robust profit targets are reached.
What about setting the stop loss under the last local low according the market technique or dow theory instead of a trailing sl?
That would be my approach. Technical rationale
Great Video My friend. Keep up the good work!!🔥🔥
Thank you 😊
Really lovely content
Very useful video!
Using Stop losses at support levels would be fantastic!!
Noted!
I feel bad for not holding uber, and many others. True, some dicey stocks it is probably better to sell and never come back. Percentages are based on an initial comparison. 5-10$ is still a 5$ difference up or down. Comparisons are only of value when comparing to a different asset, not to itself.
I dont understand why wait until the next quarter.
How about a trailing percent stop loss and turf you want for it to go up by a similar percentage of she the stop loss would be.
So if you put in 10% stop loss, you get it once it goes up 10% from the low.
Very interesting. Many thanks. I tend to be a 10% man, but I'll certainly start looking at 15% - it makes more sense in a volatile market.
i use stoploss between 1-4 percent which allow me to get 5R-50r trades but you need to know when to be cold
Likewise but with market structure.😉
@@FinancialWisdom I assume a 20% trailing stop loss would be best in these current crypto markets
Ty
Will this also apply to forex markets
Thanks for a great presentation. Find the info a great help. Hope to join you on the forum soon.
Thanks bob
I'm beginning to think u r absolutely right , my friend & mentor told me just hold for ever , the mrkt will always be back & you'll b ok . No losses whatsoever as long as u do not sell , he says that's what he does and he does have a LOT of $ . But he bought me 10 thousand dollars worth of LUMN , which had a great dividend , but now is worth nothing .so ......
Singular stock buy and hold is a risky business
Great content!
Thanks 🙏
Amazing work! Love to know what the results would’ve been based on a trailing stop of the ATR.
Yes would be more meaningful
Agreed, I'd like to see that.
I always use ATR with trailing once it goes up a good spot above my entry. But I tend to make the ATR a bit bigger just incase
Can you compare stoploss vs buy and sell double qty. So it will have one open position everytime. Plz see this.
good stop loss strategy. Do you have similar video that applies to futures?
Hi Financial Wisdom, Thanks for presenting the study. At around 6:19, it shows 15% trailing stop loss is better than 20% trailing stop loss with returns close to 74% vs close to 64%. However, near the end, from around 8:45, when compared to traditional stop loss, 20% trailing stop performed better than the 15% trailing stop loss. This seems to be a contradiction. How to explain this?
Hi Peter - The way they calculated the study was to take away trailing stop from the traditional stop loss to find the variance.
Yes, but that does not make it the best strategy. Best would surely be 15% trailing? @@FinancialWisdom
Loved all your videos. I hope to see more of your videos.
Thank you so much!
„based on a 3 month holding strategy“ - lol! Of course you’re always losing money buy and holding over such a short holding period. also, never buy and hold single stocks as trades. If you are a trader, trade. If you are an investor, you don’t trade, you invest based on fundamentals and research, not technical analysis.
I learn (and apply) so much from this channel. I am so grateful. Thank you!
Great, thanks conor👍
Thank You
Thanks again...
If you follow a low cost passive strategy, use broad market cap weighted index funds or etfs that invest in the indexes, then a buy & hold strategy works best as investing is a long term project. There is plenty of evidence to back up this approach
How often was the trailing stop adjusted to actual price -10% on the study?
Interesting research! Thank you for creating this video and sharing it with us. Much appreciated!
Glad you enjoyed it!
I don't understand how you compare price gains/losses on shares you don't sell. I sold nothing in 2009, and though stocks recovered more slowly than I hoped, they recovered, and I still own them. Furthermore, my portfolio yield adds considerably to my gains. My price above cost basis from 2011 is 54%, but that's just current price.
The point of buy and hold is that you *don't* realize losses on shares, not even during your carefully chosen 2009 end point. We don't got end points!!
Please make more acedemic based research video
I remember having a consultation with a trade analyst last August, and it was incredibly insightful. Can’t stress enough how helpful experts in this field are!
Absolutely agree! A good trade analyst can make a world of difference. What specific insights did you gain?
My colleagues had a good laugh at me when I told them I got into trading and started my journey with $5k and how much I accumulated within a span of 7 months. They never believed me until I pulled out my P&L.
Jonas, who's a pro trade analyst, has guided me to identify key market trends, pinpointed strategic entry points, and provided risk assessments, ensuring my trades decisions align with market dynamics for optimal returns.
That’s awesome! I’ve been contemplating hiring one since I can’t get a hang of trading even after buying courses. I’d like a discussion with him. Any means to reach him?
Hermanw Jonas (a Gma!L
Is he taking commissions for his services? Yes, I’m I still making money in the process. Hell yes!
Thanks for the advice, both of you. It’s reassuring to hear positive experiences.
I feel more confident about moving forward with Herman now. I just shot him a mail. Thanks for sharing your experiences!
You are the best I've ever seen at teaching, i try and be the idiot in the room, always ask questions until It's thoroughly understood, regardless of how I may look from it, I don't have to ask questions with your videos. I get it first time. If I could buy you a pint I would :)
Thanks Joshua... Mines a rum and coke these days👍
Simply Stop Loss allows/encourages more risky purchases. The greater evaluation mental cycle gets a person to the point of purchase/investment. On the 2020 Post March 23rd crash I knew it was a Fire Sale for the biggest names in the market. So had a great run until late May where I wanted to keep my 30% profits so I entered a conservative 5.6% Stop Loss, On June 10th all my stops executed, so collectively on 8 Fire Sale investments I lost 5.6%each that's over 40% of 30%. By Mid June 6/8 ran again and surpassed where I was stopped and continued to another 20%. So it would seem set a stop after you have gained 5% then set a stop at 5.5% then 10.1 and then sit back
Excellent content. Thanks for posting.
Thanks for watching!
Amazing video ! Thank you for your work.
Would you please tell me where do you find your researches please ? I am interested in looking into it too !
Thanks in advance, keep up the good work
I think it was quant investing website
Amazing and knowledge full video, you taught a lot to beginner like me. Thanks
Glad it was helpful!
Question…With the static stop loss in the calculations, is the stock sold at the end of the quarter, or is the stop loss raised to the then current percentage of price?
Assuming, of course, the price has gone up.
Raised underneath the new price the next quarter
what % below entry price are good to place a stop loss ?
depends on your timeframe etc etc, I use weekly charts and i'm around the 9% mark on average
But how much to sell if stock goes bellow 20% u sell everything? 😅
Suppose I bought split adjusted TSLA at $2 in 2014 and used a trailing Stop Loss of 20% I would have been stopped out more than 50 times each time losing 20% of my capital.
I'm more in favor of the 60/40 rule for investing. If it's a stock you want to hold for years, then never sell more than 40% during what appears to be market highs. Always keep a core position on. Of course you can tweak these percentages to your own style. Maybe for more speculation stocks you may go 20/80 and only hold 20% as a core position. And if fundamentals of a company change you need to change your core position along with that. Possibly even selling 100% and moving that capital to a company with better fundamentals.
Was the study done on the index (sp500?) level or on random stocks (us?)? It would be nice to include a link to the study.
Hi Gleb - Stockholm 30 index
@@FinancialWisdom cheers!
Do you use this approach just in your swing trading or in your actual 'long term' ISA investments?
With some variation i use this for my week to week trading strategy.
@@FinancialWisdom Cheers - and if you have an stocks and shares ISA, is that just passive no touch?
I wonder if this would work with index funds....
Any gain is better than any loss.
trading is not investing. You're also not considering taxes on short v long gains and dividends reinvested.
“Not to mention the time capital is tied up”
Go ahead and mention it! It is fucking important!
Trailing stops work well for locking in profit.
I will be forever grateful to you, you changed my entire life and I will continue to preach on your behalf for the whole world to hear you saved me from huge financial debt with just a small investment, thank you Katherine Flores.
Wow. I'm a bit perplexed seeing her been mentioned here also Didn’t know she has been good to so many people too this is wonderful, I'm in my fifth trade with her and it has been super.
She is my family's personal Broker and also a personal Broker to many families in the United states, she is a licensed broker and a FINRA AGENT in the United States.
You trade with Katherine Flores too? Wow that woman has been a blessing to me and my family.
I'm new at this, please how can I reach her?
I was skeptical at first till I decided to try. Its huge returns is awesome. I can't say much
Great 👍
Thank you 👍
great video
Thanks