Stop Loss Trading Strategy – Pros And Cons (Options, Alternatives, and Advanced Techniques)

Is a stop loss good or bad? What is the best stop-loss trading strategy? Are there alternatives to a stop-loss? How many different stop loss strategies are there? When you read books and blogs about trading, one mantra is repeated: you must always have a stop-loss. Why this obsession with stop-loss? Perhaps there are stop loss options?

Our backtests reveal that a stop-loss mostly makes your strategies perform worse because stop-losses are a trade-off between ruin/survival and profits. We also explain why we don’t include stop-loss levels in our monthly Trading Edges. At the end of the article, we give you several alternatives and stop loss strategies.

To have a fruitful discussion about the pros and cons of stop-losses, we need to understand and define a stop-loss:

(Before we go on we’d like to mention that we have a backtesting course that covers all aspects of how to backtest.)