With that backdrop and how recent the flash crash happened it is baffling why someone would use stop orders in an across the board fashion as described in the Journal piece.
A new wrinkle to why this is a bad idea (new to the discussion on this site) is that in the face of 10 minute, 1000 point move should the typical investor be placing any trades at all? In some instances the answer is yes but a large, tactical shift to a defensive posture in the face of what was almost a carbon copy of the flash crash seems like a terrible and unnecessary outcome.
I am reminded of the quote “don’t just do something, stand there” which is a play on words of course and a quote I’ve seen Rob Arnott and Jack Bogle use (for any Cliff Clavens out there, it is actually attributable to someone named Martin Gale). Part of actively managing a portfolio is know when it is better to take no action. That can be difficult but still the right thing at times. Yes you might be able to move quick enough to fade some overly done 20 minute move but far more important is not trading in the same direction as some overly done 20 minute move. If you believe there is no way to know something is overly done that would be all the more reason to avoid stops.
This article was written by Roger Nusbaum, AdvisorShares ETF Strategist.