Become a Successful Trader

April 26, 2011

Why You Can’t Beat the Stock Market

“A man may beat a stock or a group at a certain time, but no man living can beat the stock market” – Jesse Livermore

That’s right, to beat the market is simply impossible, no one can win 100% of the time. Just like in blackjack, you won’t  win every hand, what you can do however, is outperform the market. Using the S&P500 stock index as your benchmark it is possible to produce significantly higher returns, here’s how.

Winning as a trader comes from learning how to lose. Losses are simply a part of the game. If you follow a system that has a statistical edge and you can execute that system the same way each and every time then it is possible to outperform the market, but you haven’t beaten the market as if the two of you were in a race.

Can You Return 8% a Year?

Historically the stock market has averaged 8% a year (pulling from data beginning in 1871). Some of the traders interviewed in Stock Market Wizards have seen yearly returns of 50%, 100%, and even 200+%. However these returns are not for a long period of time (less than 20 years). The stock market over the long run has had an inflation adjusted annualized return rate of between six and seven percent. Given this measure of growth, it is still beneficial to be an investor along with a trader.

You can checkout my post titled Learn to Invest, then Learn to Trade to discover how investing can help you become a better trader. That said I will expand upon that idea briefly in this article.

How to Make More with Less

Keep it simple, the buy and hold method of investing is still a great way to accumulate wealth, it always has been and always will be. If you own index funds or any basket of funds that track the market, then you can capture that average market return. The trick to making the most out of this style of investing is to repeatedly contribute to your retirement accounts on a weekly or monthly basis.

The auto deposit approach of having money taken right from your checking account each week and put into your retirement account not to be touched until you retire is proven one of the top ways to accumulate a nest egg for retirement.

You can use this compounding interest calculator to play with the numbers yourself.

Adding Alpha

Hedging your portfolio creates “alpha” which can limit the volatility to the downside and contribute to outperforming the market as a whole.

While it is not possible to beat the market, outperforming the market is a possible, but daunting task. Even the best traders take advantage of the on average 8% stock market returns through long term investment vehicles.

Start right now! Here’s a video on how to setup an IRA account and get started.

Trade for today, invest for tomorrow.

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About Tim Racette
Tim Racette is a day trader of 15+ years in the E-mini futures and swing trader of stocks. Mountain biker, lover of the outdoors, and explorer. Tim is an ASU Sun Devil and a Chicagoland Native now living in sunny Scottsdale, AZ.

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