Ok,I wrote that just to tweak you. But it is true-most of the time. Perry Kaufman, in his book Smarter Trading discusses (and provides evidence) stops and the effect they have on trading systems. Most of the time, they make your performance worse-but that doesn’t mean you can do without risk management entirely. At the very least, you need some kind of catastrophe insurance, whether it is a very wide stop loss or some kind of exposure regulation for an entire portfolio.
This graphic from our friend at Blackstar Funds, Eric Crittenden, by way of Michael Covel’s Trend Following website, shows that a lot more stocks go boom than academics would predict, making that catastrophe insurance quite handy. And they don’t always come back, by the way, a fact that makes bottom-fishing kind of like running through a dynamite factory with a match. You might live, but you’re still an idiot.
