Stop the Losses!

Research Affiliates

Jim Masturzo, Jay Jeon

Research

15 Pages

Research Affiliates examines how systematic strategies can suffer large drawdowns and shows how stop loss rules can improve risk profiles while preserving process discipline.

Date Published: October 2025

Key Takeaways

Why it matters: Sharp losses trigger emotional mistakes; predefined stop rules help counter bias and contain tail risk.
When it works: Trailing stops add value in trending regimes and reduce drawdowns and negative skew across cases.
How to apply: Simple overlays on ARP and trend strategies improved risk with acceptable Sharpe tradeoffs; sizing must match the strategy.
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