Exactly. Unless you can show that the price continues to move against your losing positions by more than their cost to liquidate, you shouldn't do it. Your screw-up was putting the bad trade on in the first place.
I'm especially surprised it's used in a model like this. Most quant funds use some type of portfolio risk management to allocate capital toward bets that with the highest expected return while controlling overall risk. That losing stock may be offsetting other risks in the portfolio.
As I mentioned in my other comment, a stop-loss is a very crude approach to risk management. It will help control the middle of your left tail, but the far left tail extreme events cannot be protected against by such a rule.
I'm especially surprised it's used in a model like this. Most quant funds use some type of portfolio risk management to allocate capital toward bets that with the highest expected return while controlling overall risk. That losing stock may be offsetting other risks in the portfolio.
As I mentioned in my other comment, a stop-loss is a very crude approach to risk management. It will help control the middle of your left tail, but the far left tail extreme events cannot be protected against by such a rule.