Skip to main content

Wide Stops & Patience

Updated Jun 24, 2026 at 2:35pm

Research Draft Medium 1,218 words

"Wide stops and patience" is the defining risk posture of position trading: deliberately placing a stop-loss far enough from entry that ordinary multi-week price noise cannot dislodge the position, then holding through pullbacks that would shake out a faster trader, so the trade has room to capture a multi-month primary trend. The core tension is unavoidable — a wider stop means each share carries more risk, so the position must be smaller to keep dollar risk constant, and the trader must endure larger paper drawdowns and longer dead time. It is a bet that a few large, fully-ridden winners will outweigh many small losses, and it lives or dies on emotional discipline as much as on chart placement.

How it's calculated / formed

The stop is sized to the instrument's volatility, not to a fixed percentage or a round number, so it sits beyond the range of normal countertrend swings.

  • Volatility (ATR) stops. The standard tool is Average True Range. A common practitioner convention scales the multiple to the holding period — roughly 1.5–2.0× ATR for day trading, 2.0–3.0× for swing trades, and 3.0×–4.0× ATR for long-term/position trades (multiple ATR-stop guides converge on this ladder; treat the exact numbers as convention, not a tested optimum). The intent is to set the stop on a higher-timeframe ATR (e.g., a weekly bar) so ordinary weekly noise can't trigger it. For binary events inside the holding window (earnings, FOMC, CPI), a single bar can gap well beyond normal ATR, so the stop is widened further, the size cut, or the trade skipped.
  • The Turtle template. Richard Dennis and William Eckhardt's Turtles defined "N" as one ATR (computed as a 20-day EMA of True Range), placed the initial stop 2N from entry, and — critically — sized each "Unit" so a 1N move equaled about 1% of equity (so the 2N stop risked ~2% per unit before pyramiding). The wide stop and small unit are two halves of one rule (original Turtle rules, per TurtleTrader/TradingBlox).
  • Structure stops. Alternatively the stop is parked below a major weekly higher-low, the bottom of a multi-week base, or a long-term moving average (e.g., 30/40-week), which often lands at a similar distance but anchors to the trend's actual failure point.

The non-negotiable companion is position sizing: Position Size = Dollar Risk ÷ (Entry − Stop). A wider stop mechanically forces a smaller position. Van Tharp's framework formalizes this — risk a fixed fraction (commonly 1%) per trade so each loss is "1R," and the stop distance only changes the share count, never the dollars at risk.

How it's used in practice

A position trader keys on conditions a master of this style actually waits for:

  • Entry only inside an established primary uptrend — price above a rising 30/40-week SMA, on the long side of stage analysis, ideally on a breakout from a multi-week base or a pullback to support within that trend. Wide stops do not redeem a bad entry; they only protect a good one from noise.
  • Set the stop once, then leave it. The discipline is that the stop never moves against the position. It moves only one direction — up, via a trailing method (e.g., Chandelier exit = highest high since entry − 3× ATR) as the trend matures.
  • Patience as an exit rule. The trade is held until either the trailing stop is hit or the trend's structure breaks (lower weekly high + close below the long-term MA). Profit targets are generally avoided — capping the winner defeats the entire low-win-rate/large-winner math.
  • Pyramiding the winner. Turtles added a Unit every +0.5N, up to 4 Units, each with its own 2N stop trailing the latest entry — concentrating size into trades already proving themselves.
  • Failure modes to watch: widening (or removing) the stop after entry to "give it room" — the cardinal sin; using a wide stop with a full-sized position, which converts one normal loss into a catastrophic one; and holding past a genuine trend break by rationalizing it as "noise."

For Augustus's shorter horizons, the transferable signal is the pairing rule: any setup tagged as needing a wide volatility stop must also carry a reduced-size flag.

Adoption, debate & evidence

Wide stops are mainstream and well-documented within trend-following and position trading, not fringe. The evidence base is genuinely strong for the combined system, and that nuance matters.

  • Win rate is low by design. Trend-following systems are widely reported to win only ~35–45% of trades (QuantifiedStrategies; multiple practitioner sources), and Turtle-style breakout systems are cited around 30–40%. The edge is positive expectancy from average winners far larger than average losers.
  • Long-run efficacy. The Turtles reportedly generated an aggregate ~$175 million over the roughly five-year experiment (per the standard account of the 1983 program; the figure is journalistic, not audited). A 2024 SSRN working paper, "Does Trend-Following Still Work on Stocks?" (Zarattini, Pagani, Wilcox), reported a survivorship-bias-free long-only trend portfolio with ~15.2% CAGR and ~6.18% annualized alpha, 1991–2024 — but flagged that the strategy's heavy turnover erodes much of that edge once transaction costs are applied. Treat as one suggestive study, not settled. The broader academic time-series momentum/trend literature (e.g., Moskowitz-Ooi-Pedersen; Hurst-Ooi-Pedersen "A Century of Evidence") supports trend persistence over multi-month horizons.
  • The honest caveat. This evidence validates trend following as a complete system — entry + wide stop + size + ride-the-winner. It does not prove that "use a wider stop" improves any arbitrary strategy. Widening a stop without cutting size, without a real trend to ride, and without the patience to hold winners simply enlarges losses. Practitioner backtests are also vulnerable to survivorship and curve-fitting; the cited returns assume strict rule adherence most traders fail to maintain (loss aversion is the documented reason most cannot run this style).

Strengths & limitations

Works when: there is a strong, durable primary trend; instrument volatility is high enough that tight stops would whipsaw; the trader has the temperament to sit through deep paper pullbacks (a wide volatility stop implies open-trade drawdowns that can run well into double-digit percentages) and the capital base to hold smaller-sized positions over months.

Fails when: markets are range-bound or choppy (death by a thousand wide-stop cuts), volatility regime-shifts mid-trade, or the trader lacks discipline. The #1 misuse: treating the wide stop as a standalone tactic and keeping position size full — this is how a single trade can do account-level damage. The wide stop is only safe as the denominator in a fixed-risk sizing calculation.

Sources

Disputes flagged: the strong trend-following return figures (Turtle ~$175M; 15.2% CAGR study) describe the complete system under strict rule-following, not the wide-stop tactic in isolation. The Turtle profit figure is journalistic, not audited; the SSRN result is gross of much of its real-world transaction cost. Backtested figures carry survivorship/curve-fit risk, and most retail traders cannot maintain the discipline the returns assume.