In logic, a tautology (from the Greek word ταυτολογία) is a formula that is true in every possible interpretation.
Philosopher Ludwig Wittgenstein first applied the term to redundancies of propositional logic in 1921; (it had been used earlier to refer to rhetorical tautologies, and continues to be used in that alternate sense). A formula is satisfiable if it is true under at least one interpretation, and thus a tautology is a formula whose negation is unsatisfiable ...
I certainly take issue with some of your statements
particularly when as someone who initially said you liked hard evidence you have defaulted to tautology.
While you may disagree I certainly don't agree.
Ok but I don't think this discussion has helped those who think they have an edge ---don't use stops and have found that their portfolio is anything but impressive due to a few really destructive losses.
EG GALUMAY
I imagine that stop losses are more likely to be in the toolkit of those with a technical bent or traders. It certainly wouldnt work for a long term fundamental investor like me, stops would have taken out nearly all my positions - and turned potential gains into real losses. It would have also realised small losses in other positions I still hold, and dont want to sell.
Hi Galumay
If you changed the reference to 'stop loss' to a form of exit strategy, would that change your point of view?
I would understand that a stop loss is a form of exit strategy, I have exit strategies for my positions, and they reference my dynamic fundamental analysis. It's not a stop loss though.
Alpha, which is what we are talking about, is a zero sum game before expenses. Proving it is like saying prove +1 + (-1) = 0. There's the hard data if required. If your simulations do not prove that result, it is the simulations that are somehow wrong. Perhaps I can defer to a higher authority than myself. The attached link is to the Nobel Lecture presented by William Sharpe in 1990 for his theories which were the foundations of the idea of alpha. You are looking for equations 9, 10 and 11. It is a tautology. There is no requirement for simulation. You can apply this concept to any market.
If your stops are directionally informed, it is the informed prediction that is making you money. If you have no idea, then you have no idea when your idea is actually wrong and you can stick a stop anywhere you like without expectation of value add. Stops do not add value in and of themselves on average, through time. The only thiong that makes money is accurate prediction of a price.
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1990/sharpe-lecture.pdf
I can't follow a Nobel, so I'm off. Cheers.
I imagine that stop losses are more likely to be in the toolkit of those with a technical bent or traders. It certainly wouldnt work for a long term fundamental investor like me,
.stops would have taken out nearly all my positions - and turned potential gains into real losses
Again your not thinking much about placing a stop. To you its a random position and you think its going to cause you small looses---infinitum.It would have also realised small losses in other positions I still hold, and dont want to sell.
Thanks, your first sentence answered my question.
Markets are dynamic. This raises the question about what are commonly defined as 'stop losses', which are static in their current application, as used by a wide range of traders, are the appropriate method without taking market dynamics into consideration.
Having traded spot and indices during the GFC led me to think that there has to be a better way. This led up to working on a more appropriate way to manage downside risk.
It's interesting that when people see references to trading without stops bring out the holy trading bible about stop losses but fail to realise that there are a range of traders doing this and successfully trade in this manner. Some may have soft stops or an exit strategy that is applied when a trade goes sour. Alternatively they may use recovery strategies that are designed to recover the position.
When I saw this topic come up I thought it may start going into some of these areas, looking at the last couple of posts it between tech/a and RY, it does not appear that it will.
To employ these kind of approaches, requires three key ingredients:
1. Risk management
2. Money management
3. Discipline.
The undisciplined trader will fail number 3 and possibly 1 & 2 as well. Therefore they should stick to the traditional 'stop loss' approach.
Just added some food for thought.
You don't know this. It would also have removed a large chunk of your losses so far.
You would not be suffering from Opportunity Cost.
Where would you have placed stops? At a point where you knw you were wrong---OR are you not wrong yet in one single trade?
IE You havent made a loss until you have liquidated it?
Again your not thinking much about placing a stop. To you its a random position and you think its going to cause you small looses---infinitum.
Fair enough, I dont KNOW it, but I am reasonable confident its the case, I am not aware of long term, fundamental investors that advocate stop losses.
Difficult question, given that I dont use stops! I am assuming that if placed they would be at a price lower than the purchase price, and given that even the best performers in my portfolio spent some time in negative territory, they would have been stopped out.
The point that I was wrong was in the timing - in hindsight! Thats OK though time in the market will look after the timing as long as the fundamentals are there.
You are right, I am not thinking much about placing a stop, because they are not one of my tools. I know that its not a random position, and i dont believe its always going to cause a loss, I just dont see how it fits in with a long term buy and hold strategy and I cant say I have ever seen anyone argue for its use in that way.
It is of itself--designed by you and argued by you???
Fair enough, I dont KNOW it, but I am reasonable confident its the case, I am not aware of long term, fundamental investors that advocate stop losses.
You are right, I am not thinking much about placing a stop, because they are not one of my tools. I know that its not a random position, and i dont believe its always going to cause a loss, I just dont see how it fits in with a long term buy and hold strategy and I cant say I have ever seen anyone argue for its use in that way.
T/A, I'm just the messenger. If you don't wish to hear the message from me (which you have also delivered to me in this thread and is being delivered all around you), that's fine. It's been delivered. It's just information.
From an encouraging beginning to a disappointing end.
I guess those of us who constantly trade to increase our Reward to Risk will do so
ignorantly making the profits we cant possibly be making.
That right time to buy/sell would have to be when the majority of money agrees price will move up, down and for how long. A dollar cost averaging system does not consider the right time but rather an accumulation of stocks over time. One persons stop loss may be another persons accumulation. In doing this strategy, stocks as highlighted are better candidates.eg.TLS,WBC they took years to recover. Look at WOW now it has fallen already over 20% some who have been in this stock and ridden the trend and div payments could have exited say after 10% fall with profit and just wait to get back in soon at the lower price when it gets to the bottom again and ride the trend again as this is a top 20 company.....There is always a time to buy and a time to sell even in a buy and hold strategy.
Just my opinion
That right time to buy/sell would have to be when the majority of money agrees price will move up, down and for how long.
A dollar cost averaging system does not consider the right time but rather an accumulation of stocks over time.
One persons stop loss may be another persons accumulation. In doing this strategy, stocks as highlighted are better candidates.
(1) More Aggregate winning profit than aggregate losing losses.
OR
(2) Larger Total Aggregate wins than Total Aggregate losses.
OR
(3) A mixture of both.
The only thiong that makes money is accurate prediction of a price.
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1990/sharpe-lecture.pdf
I can't follow a Nobel, so I'm off. Cheers.
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