A webcast presentation by Anthony Trongone originally held on May 22nd, 2013 as part of the CMT Association’s Educational Web Series.
This webinar questions the benefits of using protective stop-orders when trading the equities market. Amid the consensus among market strategists to take a defensive stance, simply questioning the absence of a protective stop order invites criticism. Before addressing this contentious topic, would you accept this premise: Although protective stop orders can be effective, they frequently misfire. The primary reason for supporting the use of a backstop is to offset your position before a minor loss turns into a devastating setback. Besides insulating you from further loss, it does offer the psychologically calming effect of knowing that your exposure to loss is fixed. Although the premise for minimizing loss appears to be a sensible strategy, the basis of this recommendation comes from subjective theory not empirical evidence. And so the discussion often skirts around this issue by giving us platitudes such as never let a small loss turn into a big one. Rather than accept this premise, this webinar uses a quantitative approach to quantify the profitability of these protective-stop orders over 745 trading days and discusses the emotional impact these orders have on your performance.