Hard disagree. We have run stops on every book we have touched for ten years, prop desk, hedge fund, and since 2023 vaults, and the only people who tell us stops are retail comfort are people who have never had to call an investor and explain where the budget went. TL;DR: a stop has nothing to do with whether the asset is good. It is what happens when the loss budget runs out, decided while you could still think straight. Your reason 1 already is a stop, you just do not call it one. hXXI hit its stop at 76K in March and a 23% BTC drawdown became 30 bps. The Copernican objection treats the entry price as a random timestamp, but entry is where the loss started accruing against a finite loss budget, and that budget is the only thing a risk manager is paid to protect. Whether the asset is worth holding is a different question answered by a different person. Take reason 1 seriously and the whole argument collapses into it. Every dollar of drawdown is a dollar off the loss budget, and realised vol rises when a position moves against you, so the vol-scaled size you are allowed to hold shrinks at the same time. The stop is where both constraints bind at once instead of piecemeal. Its level is sigma times a horizon times a multiplier, a precise number that means exactly what it says: the point at which the remaining budget no longer covers the next move. Reason 2 is the same thing from the other side. A pre-committed stop is the answer, written down before the position exists, to "what does my thesis say about a move this size against me". If the thesis says nothing, the stop fires. If the thesis is mean reversion and the move is the setup, the stop was set wider at design time. Either way the decision was made before the loss was on the screen, which is the one state where the trader's judgment is least worth trusting. Then there is the capital that is not ours. A vault epoch carries a loss budget investors subscribed to. hXXI stopped its long delta at 76K in the March selloff, a 23% BTC drawdown, and closed the epoch within 30 bps. Without the stop the book carried long delta to 66K, far past the loss budget. Holding through because the asset might be "worth holding" would have substituted the fiduciary's conviction for the investor's loss tolerance. Returns compound geometrically. A 50% loss needs 100% to recover, and open-ended losses on a positive expectancy book still go to zero if the bet size is large enough relative to the edge. The stop puts a floor under the loss distribution. It is not a put: it pays for the floor in forgone rebounds instead of premium, and it can gap. For a short vol book with financed exposure the alternative is no floor at all. Where we agree: a stop at a chart level with no vol input and no loss budget is theatre. A stop inside the bid-ask noise is a donation to the market maker. A stop wider than the position's maximum loss is not a stop. The fix is a better stop, computed off vol and the remaining budget. All of the above is fair enough for one guy, his own money, no mandate and all the time in the world to be right. The rest of us are running other people's money with a number on it, and that number needs a trigger. Rocky got the risk management right: it is about how hard you can get hit and keep moving. The stop is how a book keeps moving. So, @DeepDishEnjoyer, honest question: when your book is down the budget, what pulls the trigger, a rule you wrote last month or you, at 3am, staring at the screen?
