Smart traders make money on BOTH sides of the market. I've got 10-15% of my money on the short side right now. How many great football teams only run the ball and don't pass it -- or vice versa? Anyone who wants to maximize their success utilizes ALL options available to them.
Or to extend your analogy, its like saying that the visiting team won't make any yards at all because the home team is heavily favored.
Look up a bunch of historic charts and see if stops would have helped. Blackstar Funds put out an excellent paper on the subject of volatility based stops on individual equities.
Crazy bulls getting even more Crazier for 2010. I think new highs above 14200 are coming by March 2010, this is the greatest story never told..... Also working in the bulls' favor is the fact that stocks have never fallen in the second year of a bull market going as far back as 1949, notes Sam Stovall, chief investment strategist at S&P Equity Research. The average gain in year two of a bull is 15%, he says.
that's why I became a daytrader. I become a bear or a bull within a matter of minutes. daily charts are just a hobby. I don't have the institutional-size cash to hold overnight or long term positions (yet that's what some politicians want you to do).
I guess the problem is in stop placement - what if the bull market corrects enough to stop you out, then resumes? You do worse than staying flat, and much worse than buy & hold. If your stops are wide enough to ride out pullbacks (10%+ stops) then you need a further rally bigger than your stop before you can expect profit. E.g. With a 10% stop, if the S&P rallies to 1200 before having a 10%+ correction, buying here will actually lose money and it needs to rally beyond 1216 before you see a single point on profit. That's the downside of trading momentum and exiting on pullbacks - in the early and late parts of the move you lose money. Since this rally is way above the 200 day MA, is 9 months old, and the biggest rally for 77 years, it's quite likely to be in the later stages. In that case, being long with a wide trailing stop is probably not the best way to play it. I'd rather use something like bull call spreads - fixed downside, staying power, and nice risk/reward. It will only lose out if markets don't rally or if they rally huge. A momentum long with trailing stops will only win if markets rally big (10%+) and will only make 3-1 R/R if they rally huge (30%). A bullish options spread should do better in a moderate rally, is not path dependent like a long-with-stop, and has less downside if you are wrong. That's my 2 cents.
If you look at the last couple of decades of market history (not just equities), using stops may have underperformed buy and hold on an absolute return basis, but not (!) on a risk adjusted basis. That's a key finding IMO, but that's just me.