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Has there been any rigorous study on stop loss ? When to apply it?

Has it been shown to work through proper statistical backtests?

I am interested in Equities, preferably European stocks.

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Hi Siddharth, welcome to quant.SE and thanks for your question. I look forward to seeing you around. – Tal Fishman Jan 17 '12 at 15:08
@Siddharth: You can accept the answer if you are satisfied by it :-) – vonjd Jan 28 '13 at 16:01

I find this one very helpful:

Re-Examining the Hidden Costs of the Stop-Loss by Wilson Ma, Guy Morita, Kira Detko


In this paper, we present general implications of the impact of stop-losses to future returns. The use of stop-losses change return distributions, but not in the way that one would typically expect. We find that while stop-losses can reduce position volatility, hidden costs offset perceived benefits in terms of altering future returns. Use of both stop-losses and profit-taking stops separately or in conjunction offer no statistically significant difference in expected return but have a meaningful impact in returns with drift, as the expected return converges to that of the underlying.

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