RISK-03

Stop Loss Overlay

Overlays a stop loss on a base trend strategy. When price drops below entry by stop percentage, exit and wait for cooldown period before re-entering. Protects gains and limits losses.

Risk ManagementStop Loss

Open interactive charts Compare with others

At a glance

Best onAny trending market

Signal frequencyDaily

Typical holding periodDays to weeks

Asset classesIndex, Commodity, FX

Markets tested10

Data through2026-11-10

What the backtest shows

Beat buy-and-hold on 4 of 10 markets by annual return over 5 years.
Had a smaller maximum drawdown than buy-and-hold on 8 of 10 markets.
Best market by Sharpe ratio: GLD (Sharpe 1.06, CAGR 16.2%).
Weakest market: UNG (Sharpe -0.04, CAGR -10.1%).

Equity curve

Stop Loss Overlay Buy & hold · SPY, 2010-01-04 → 2026-11-10, growth of 1

Score and risk profile

Arena Score: 40.7SPY, 5 years

Return quality · 30%47

Drawdown control · 25%24

Consistency · 20%51

Robustness · 15%12

Significance · 10%85

Each bar is a percentile against every strategy on the same market and window (100 = best).

Time in market67%

Ulcer index9.0%

Longest drawdown702 days

Daily VaR (95%)-1.17%

Probability Sharpe > 085%

Beta vs buy & hold0.39

Alpha (annual)+0.1%

Positive months50%

CAGR after 10 bp costs2.4%

Deflated Sharpe (luck-adjusted)33%

CAGR, 90% bootstrap range-3.3% to 13.0%

Max drawdown, 90% bootstrap range-33.8% to -11.1%

How it held up in sell-offs (SPY)

Period	Strategy	Buy & hold
Q4 2018 sell-off	-7.7%	-19.2%
COVID crash (Feb–Mar 2020)	-4.7%	-33.7%
2022 bear market	-10.8%	-24.5%
Market above its 200-day average (annualized) · 81%	+6.5%	+12.5%
Market below its 200-day average (annualized) · 19%	+6.0%	+19.8%

Sell-off dates follow the US stock market. Above/below the 200-day average uses the previous day's position, so there is no look-ahead.

Out-of-sample check (SPY)

Check	Value
Chosen parameters on their 3-year training windows (average Sharpe)	0.80
Same parameters in the following 6 months, when traded (Sharpe)	0.68
Default parameters over the same months (Sharpe)	0.68
Parameter re-selections / changes	28 / 6
Parameter settings with a positive Sharpe (full history)	9 of 9
Sharpe across settings: worst / median / best	0.63 / 0.64 / 0.75

Out-of-sample periods start on 2013-01-04. Training-window figures are flattered by picking the best of 9 settings; the out-of-sample figure is what the strategy actually earned. A large drop, or a result that depends on one setting, points to overfitting. How walk-forward testing works.

Results by market (5 years)

Market	CAGR	Buy & hold CAGR	Sharpe	Max drawdown	Buy & hold max DD	Volatility	Arena Score
GLDSPDR Gold Shares	16.2%	16.4%	1.06	-13.9%	-28.3%	15.6%	84
DBAInvesco DB Agriculture	5.8%	8.8%	0.61	-13.4%	-15.9%	10.5%	73
BTC-USDBitcoin	20.8%	2.6%	0.60	-52.9%	-75.9%	26.9%	84
ETH-USDEthereum	18.1%	-15.1%	0.49	-49.5%	-79.0%	35.8%	83
DBCInvesco DB Commodity Index	6.6%	10.8%	0.49	-31.5%	-27.3%	15.1%	56
SPYSPDR S&P 500	4.5%	11.6%	0.45	-21.5%	-24.5%	10.8%	41
SLViShares Silver Trust	8.0%	15.2%	0.42	-45.7%	-57.8%	30.7%	51
USOUnited States Oil Fund	6.3%	20.2%	0.33	-48.1%	-36.2%	29.9%	46
EURUSD=XEUR/USD	0.4%	-0.7%	0.09	-8.5%	-17.2%	5.1%	56
UNGUnited States Natural Gas	-10.1%	-30.7%	-0.04	-72.8%	-93.3%	42.2%	59

Strategy metrics use daily returns without trading costs. Buy-and-hold figures are for the same market and window. Rows are sorted by Sharpe ratio.

SPY across time windows

Window	Total return	CAGR	Sharpe	Sortino	Max DD	Win days	Trades
1 year	-6.9%	-6.9%	-0.48	-0.49	-11.5%	33%	35
3 years	+40.9%	12.1%	1.21	1.37	-11.5%	43%	53
5 years	+24.4%	4.5%	0.45	0.48	-21.5%	36%	103
Full history	+184.0%	6.4%	0.64	0.68	-21.5%	39%	302

Rules

Entry

Base signal: Price > SMA
Only if not in cooldown

Exit

Price drops Stop_Pct from entry
Or base signal exits

Indicators

SMA for trend
Entry price tracking

Inputs

MA_Period = 50
Stop_Pct = 5%
Cooldown = 5 days

Position sizing

Fixed 100% allocation

Risk controls

Hard stop loss
Cooldown prevents whipsaws

Strategy evidence

Only available, validated bundles appear below. Missing evidence is not a passing validation result.

Evidence coverage

10 / 10 declared strategy–market pairs validated

Notes

Stop loss is essential risk management
Cooldown period prevents re-entry whipsaws
Can be overlaid on any strategy

Related strategies

RISK-04 · SPY 5Y Sharpe 0.44Trailing Stop Strategy MACRO-03 · SPY 5Y Sharpe 0.56Flight to Quality MOM-11 · SPY 5Y Sharpe 0.58Momentum Crash Protection RISK-01 · SPY 5Y Sharpe 0.63Drawdown Control

Embed this score

Add the live badge to a blog post, README or forum signature. It updates with the daily data.

<a href="https://quantarenas.com/strategy/risk-03-stop-loss-overlay/"><img src="https://quantarenas.com/badge/risk-03-stop-loss-overlay.svg" alt="Stop Loss Overlay Arena Score on Quant Arena" height="20"></a>

[![Stop Loss Overlay Arena Score](https://quantarenas.com/badge/risk-03-stop-loss-overlay.svg)](https://quantarenas.com/strategy/risk-03-stop-loss-overlay/)

Backtests are historical simulations on daily data and do not include commissions or slippage. They do not guarantee future results and are not investment advice. See the methodology for how every strategy is tested.