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.
I find this one very helpful:
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.