Claim check: Cut losses, let profits run
“Cut your losses short and let your profits run: use a stop loss.”
What the data says
Does not hold Not supported by the data: the rule gave a maximum drawdown at least a quarter smaller together with a higher Sharpe ratio in 1 of 10 markets over 2010-01-01 to 2026-11-10 and in both halves of the history in 1; the median CAGR was +3.3% against +4.1% for buy-and-hold and the median maximum drawdown -58.8% against -71.2% (before costs). Most markets do not show the claimed benefit.
No effect we can tell from chance, or the opposite effect.
Who says it
David Ricardo's 19th-century rule, repeated by Jesse Livermore and every risk-management course.
Origins are as commonly cited and were not independently verified.
How we tested it
Hold the market; if the close falls 15% below the highest close since entry (a trailing stop, which is what 'let profits run' implies), go to cash; re-enter when the close exceeds its previous 50-day high. Compared with buy-and-hold. The stop counts as working only if it cuts the maximum drawdown by at least a quarter and also improves the Sharpe ratio, in the full history and in both halves. Tighter and looser trailing stops and a fixed stop 10% below the entry price are shown as robustness checks. Stops are tested on daily closes, so gaps are not modelled.
Results
| Market | Period | CAGR | Buy and hold | Sharpe | Buy and hold | Max drawdown | Buy and hold | In market | Trades | Reading |
|---|---|---|---|---|---|---|---|---|---|---|
| S&P 500 | 2010-01-04 → 2026-11-10 | +9.2% | +13.8% | 0.69 | 0.85 | -31% | -34% | 93% | 8 | No effect |
| Gold | 2010-01-04 → 2026-11-10 | +5.3% | +7.5% | 0.42 | 0.51 | -55% | -46% | 86% | 10 | No effect |
| Silver | 2010-01-04 → 2026-11-10 | +3.5% | +6.1% | 0.27 | 0.35 | -73% | -76% | 63% | 24 | No effect |
| Oil | 2010-01-04 → 2026-11-10 | -3.6% | -4.8% | -0.05 | 0.05 | -67% | -95% | 59% | 27 | No effect |
| Natural gas | 2010-01-04 → 2026-11-10 | -13.7% | -25.1% | -0.44 | -0.35 | -92% | -99% | 28% | 35 | No effect |
| Commodities | 2010-01-04 → 2026-11-10 | +3.0% | +2.2% | 0.28 | 0.21 | -51% | -66% | 80% | 11 | No effect |
| Agriculture | 2010-01-04 → 2026-11-10 | -0.5% | +0.8% | 0.02 | 0.13 | -62% | -62% | 85% | 11 | No effect |
| EUR/USD | 2010-01-01 → 2026-11-10 | -1.5% | -1.5% | -0.15 | -0.13 | -31% | -35% | 92% | 5 | No effect |
| Bitcoin | 2014-09-17 → 2026-11-10 | +33.6% | +52.0% | 0.78 | 0.80 | -64% | -83% | 42% | 38 | No effect |
| Ether | 2017-11-09 → 2026-11-10 | +52.0% | +22.9% | 0.92 | 0.56 | -48% | -94% | 38% | 28 | Clear and stable |
Sharpe ratio minus buy-and-hold
Robustness: other settings
| Setting | Verdict on its own | Markets with a stable win | Markets where it won |
|---|---|---|---|
| Main setting | Does not hold | 1 / 10 | 1 / 10 |
| 10% trailing stop | Partly | 2 / 10 | 4 / 10 |
| 20% trailing stop | Does not hold | 0 / 10 | 2 / 10 |
| Fixed stop 10% below the entry price | Does not hold | 0 / 10 | 0 / 10 |
Stability across the two halves of history
A saying that only works in one half of the history is not much of a rule. Each row shows the effect in the full history, the first half and the second half; green means the claimed effect was present.
| Market | Full history | First half | Second half |
|---|---|---|---|
| S&P 500 | -31% vs -34% · -0.15 2010-01-04 → 2026-11-10 | -22% vs -19% · -0.10 2010-01-04 → 2018-06-06 | -31% vs -34% · -0.23 2018-06-06 → 2026-11-10 |
| Gold | -55% vs -46% · -0.09 2010-01-04 → 2026-11-10 | -55% vs -46% · -0.21 2010-01-04 → 2018-06-06 | -28% vs -28% · -0.01 2018-06-06 → 2026-11-10 |
| Silver | -73% vs -76% · -0.08 2010-01-04 → 2026-11-10 | -66% vs -72% · -0.10 2010-01-04 → 2018-06-06 | -51% vs -58% · -0.08 2018-06-06 → 2026-11-10 |
| Oil | -67% vs -95% · -0.10 2010-01-04 → 2026-11-10 | -59% vs -82% · +0.05 2010-01-04 → 2018-06-06 | -55% vs -87% · -0.20 2018-06-06 → 2026-11-10 |
| Natural gas | -92% vs -99% · -0.10 2010-01-04 → 2026-11-10 | -84% vs -94% · -0.27 2010-01-04 → 2018-06-06 | -77% vs -94% · +0.04 2018-06-06 → 2026-11-10 |
| Commodities | -51% vs -66% · +0.07 2010-01-04 → 2026-11-10 | -51% vs -63% · +0.07 2010-01-04 → 2018-06-06 | -27% vs -42% · +0.05 2018-06-06 → 2026-11-10 |
| Agriculture | -62% vs -62% · -0.11 2010-01-04 → 2026-11-10 | -46% vs -49% · -0.08 2010-01-04 → 2018-06-06 | -32% vs -28% · -0.15 2018-06-06 → 2026-11-10 |
| EUR/USD | -31% vs -35% · -0.02 2010-01-01 → 2026-11-10 | -31% vs -30% · -0.07 2010-01-01 → 2018-06-06 | -14% vs -22% · +0.05 2018-06-06 → 2026-11-10 |
| Bitcoin | -64% vs -83% · -0.03 2014-09-17 → 2026-11-10 | -55% vs -83% · +0.10 2014-09-17 → 2020-10-14 | -64% vs -77% · -0.17 2020-10-14 → 2026-11-10 |
| Ether | -48% vs -94% · +0.36 2017-11-09 → 2026-11-10 | -48% vs -94% · +0.58 2017-11-09 → 2022-05-11 | -45% vs -68% · +0.05 2022-05-11 → 2026-11-10 |
Context and cross-checks
Shown for context; not part of the verdict.
The site's own strategies
| Strategy | Market | Sharpe, 5 years | Benchmark, 5 years | Sharpe, full | Benchmark, full | CAGR, full | Benchmark, full | Max DD, full | Benchmark, full | Reading |
|---|---|---|---|---|---|---|---|---|---|---|
| RISK-03 Stop Loss Overlay | SPY | 0.45 | 0.72 | 0.64 | 0.85 | +6.4% | +13.8% | -21% | -34% | No effect |
| RISK-03 Stop Loss Overlay | GLD | 1.06 | 0.89 | 0.54 | 0.51 | +6.1% | +7.5% | -36% | -46% | No effect |
| RISK-03 Stop Loss Overlay | USO | 0.33 | 0.68 | 0.14 | 0.05 | +0.5% | -4.8% | -52% | -95% | Full history only |
| RISK-03 Stop Loss Overlay | EUR/USD | 0.09 | -0.05 | -0.10 | -0.13 | -0.7% | -1.5% | -31% | -35% | No effect |
| RISK-03 Stop Loss Overlay | DBC | 0.49 | 0.63 | 0.32 | 0.21 | +3.2% | +2.2% | -34% | -66% | Full history only |
| RISK-03 Stop Loss Overlay | SLV | 0.42 | 0.57 | 0.35 | 0.35 | +5.5% | +6.1% | -58% | -76% | No effect |
| RISK-03 Stop Loss Overlay | DBA | 0.61 | 0.68 | 0.43 | 0.13 | +3.6% | +0.8% | -25% | -62% | Full history only |
| RISK-03 Stop Loss Overlay | UNG | -0.04 | -0.27 | -0.25 | -0.35 | -12.4% | -25.1% | -90% | -99% | No effect |
| RISK-03 Stop Loss Overlay | BTC | 0.60 | 0.25 | 1.19 | 0.80 | +74.9% | +52.0% | -62% | -83% | Clear and stable |
| RISK-03 Stop Loss Overlay | ETH | 0.49 | 0.09 | 0.93 | 0.56 | +60.3% | +22.9% | -50% | -94% | Clear and stable |
| RISK-04 Trailing Stop Strategy | SPY | 0.44 | 0.72 | 0.68 | 0.85 | +6.8% | +13.8% | -26% | -34% | No effect |
| RISK-04 Trailing Stop Strategy | GLD | 0.73 | 0.89 | 0.47 | 0.51 | +5.3% | +7.5% | -30% | -46% | No effect |
| RISK-04 Trailing Stop Strategy | USO | 0.36 | 0.68 | 0.19 | 0.05 | +1.6% | -4.8% | -58% | -95% | Full history only |
| RISK-04 Trailing Stop Strategy | EUR/USD | 0.11 | -0.05 | -0.17 | -0.13 | -1.2% | -1.5% | -35% | -35% | No effect |
| RISK-04 Trailing Stop Strategy | DBC | 0.61 | 0.63 | 0.51 | 0.21 | +5.7% | +2.2% | -30% | -66% | Full history only |
| RISK-04 Trailing Stop Strategy | SLV | 0.62 | 0.57 | 0.46 | 0.35 | +8.2% | +6.1% | -41% | -76% | Clear and stable |
| RISK-04 Trailing Stop Strategy | DBA | 0.47 | 0.68 | 0.17 | 0.13 | +1.2% | +0.8% | -42% | -62% | Full history only |
| RISK-04 Trailing Stop Strategy | UNG | -0.16 | -0.27 | -0.16 | -0.35 | -11.2% | -25.1% | -90% | -99% | No effect |
| RISK-04 Trailing Stop Strategy | BTC | 0.23 | 0.25 | 1.09 | 0.80 | +64.5% | +52.0% | -61% | -83% | Full history only |
| RISK-04 Trailing Stop Strategy | ETH | 0.43 | 0.09 | 0.91 | 0.56 | +61.4% | +22.9% | -69% | -94% | Clear and stable |
Sharpe ratio minus benchmark, full history · Benchmark = the buy-and-hold shown on the strategy pages.
The honest caveat
Daily closes ignore intraday gaps and slippage, so real stops would execute worse.
Descriptive statistics from historical data, before costs. Not a forecast and not investment advice.
Questions
Cut your losses short and let your profits run: use a stop loss.
Not supported by the data: the rule gave a maximum drawdown at least a quarter smaller together with a higher Sharpe ratio in 1 of 10 markets over 2010-01-01 to 2026-11-10 and in both halves of the history in 1; the median CAGR was +3.3% against +4.1% for buy-and-hold and the median maximum drawdown -58.8% against -71.2% (before costs). Most markets do not show the claimed benefit.
How was this claim tested?
Hold the market; if the close falls 15% below the highest close since entry (a trailing stop, which is what 'let profits run' implies), go to cash; re-enter when the close exceeds its previous 50-day high. Compared with buy-and-hold. The stop counts as working only if it cuts the maximum drawdown by at least a quarter and also improves the Sharpe ratio, in the full history and in both halves. Tighter and looser trailing stops and a fixed stop 10% below the entry price are shown as robustness checks. Stops are tested on daily closes, so gaps are not modelled.
Related strategies on Quant Arena
Markets used
S&P 500 · Gold · Silver · Oil · Natural gas · Commodities · Agriculture · EUR/USD · Bitcoin · Ether