TheRumpledOne dropped us a line with the following link on the Yahoo forums:
The article deals with the question whether or not to use the traditional stop losses and offers alternative "scientific" way to place them. Alas, the article is quite confusing in a number of ways:
1. it is technically impossible to trade without the stop losses. Why? Since you always employ the last resort stop loss in the form of the trading account margin call. While I hope no one on this forum would advocate such a style of "trading" when the only stop loss employed is a margin call, let's just pretend for now that there is such a "trader" and that he does not employ any other sort of stop loss and relies on his large bank roll. Obviously, the larger the account and the smaller the position, the higher is the probability that he won't get stopped out due to the margin call. The problem is that this probability is always less than 100%, so eventually, he will get stopped out by a margin call, there's no avoiding it. The only way to not being stopped by a margin call is to use an infinite amount of capital, which, by nature, is impossible. Thus, you always are trading with a stop loss.
2. the author of the article does not say that he would recommend trading without the stop losses altogether, he only suggests to use some alternative ways to place the stop losses. So the article is in fact not about trading without stops, but rather about the way how to place the stops.
3. I agree with the author that it is no good using the arbitrary style of stop losses, based on your personal risk tolerance with no respect to the particular trading system. But the author doesn't suggest any alternative objective, non-arbitrary method of placing the stops.
4. in the article, the author says, quote:
Now then, you now have an effective, objective, scientific way of measuring whether or not your trade has broken down. When you draw a trendline as indicated here, you will know at what level you need to sell your stock. That is, when the trendline has broken.
(The above image is reposted from the original article)
Placing stops above/below the trendline might be considered scientific only if the trendline is calculated automatically based on some objective formula. Placing stops above/below the "seasoned eye drawn" trendline has got nothing to do with any science at all. The author of the above article doesn't give any idea whether the trendline drawn on the picture was calculated automatically or with a "trained eye" approach, so I assume that it was not calculated automatically.
Conclusion: for me, the article is just plain rambling and brings nothing new.