So, you’ve decided to take on the challenge of beating the market? This is no small feat, particularly because as retail traders and investors we are up against the best and brightest on Wall Street. With that said, if you are committed, put in lots of hard work, and keep things simple with your strategy, beating the market isn’t as far-fetched as many “experts” will have you believe.
Since the S&P 500 index usually delivers an annual return of 8%, you will need to find a tried and true system that consistently generates above-average returns. The only problem is that sorting through all of the information available on the stock market is almost as challenging as the actual trading. Most people quickly discover that finding data-driven trading strategies that have been backtested and don’t rely on pure hype for sales is more of the exception rather than the norm.
If you’re interested in a market-beating method, it’s a good idea to focus solely on stocks that are showing relative strength. These are stocks that have performed or are performing well when compared to the market as a whole. The idea is that the trend of outperformance will continue, allowing you to capture outsized returns. After all, beating the market will require you to develop a keen eye for winners.
The good news is that spotting relative strength in the market isn’t all that difficult. It could mean looking for the stocks that are green on a big down day in the indices or checking for stocks that are up more on a percentage basis than the overall indices during rallies. Relative strength is also clear in stocks that are breaking out to new 52-week highs. Using this technique in your strategy takes some time to develop, but can certainly pay off in a big way by providing massive returns.
Looking at the individual sectors that have outperformed the market in recent weeks or months is another great approach to finding relative strength. For example, the financial sector has been incredibly strong in 2021 and has rallied over 25% year-to-date versus the 11% return in the S&P 500. Since these stocks have been showing relative strength, looking to swing trade a stock like Goldman Sachs (NYSE:GS) that is making new all-time highs during a weak period in the market can go a long way towards generating outsized returns.
Whether you are a beginner or an experienced investor, beating the market is a lot easier if you can avoid overcomplicating things. Make sure to check out Mindful Trader for more successful strategies that can help you outperform the market. A 20-year backtest of the Mindful Trader portfolio showed an annual return of 181% per year, and you can learn the same rules-based trading strategies to take your account to the next level by checking out his service.