Wednesday, April 24, 2013

One Reason We Don't Use Stops

False Rumor Causes Stocks to Plunge

I am often asked if I use stops to try to limit drawdowns.  In all of our testing we have found that every once in a while stops can help, but for the most part they don't.  Days like yesterday are another reason that stops can be problematic.  When the market briefly plunged it probably triggered a bunch of stops, causing traders to sell positions at a loss only to see the market rally moments later.

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