Taleb’s latest paper uses the DIRAC function for modeling and provides a critical analysis of the impact of stop-losses on trading systems.

In public perception, setting a stop-loss is believed to reduce risk, but mathematical proof shows this is a serious cognitive fallacy. The risk never disappears; if you set a 10% stop-loss, all the probabilities of losing between 10% and 100% are concentrated at that 10% stop point, making it the most fragile spot in your trading system.

This paper’s viewpoint further highlights the importance of position sizing, which is what I’m currently practicing (. I used to prefer rolling over small funds and going all-in ). The essence of setting a stop-loss is to use a higher probability of small losses to offset the risk of low-probability, large losses. However, this can lead to frequent small losses due to minor fluctuations and cause you to miss real trending opportunities, which in itself is a form of accumulating systemic risk.

In terms of skill trees, both the position-sized swing shorting volatility strategy and the trend-following long volatility strategy should be adopted. Traders have three types of candlesticks: the market’s K-line, the account PnL K-line, and the psychological K-line. Position sizing and swing trading help control account PnL drawdowns and establish positive feedback for mindset.

To put it simply:

If your stop-loss is set on a higher timeframe, it’s easy to get stopped out by normal fluctuations; not setting a stop-loss means you’re leaving all your risk to chance.
I believe many people have experienced this: you set a stop-loss and get triggered, and then the market moves exactly as you predicted, causing you to miss a great opportunity. So you become complacent and stop using stop-losses, only for the market to move against you and wipe out your entire position.

Is there a best-of-both-worlds approach? Yes:
Divide your total capital into n smaller portions. Use isolated margin for each position. Liquidation serves as your stop-loss, and take-profits are unlimited.