The stock market has continued one of the greatest bull runs in its history over recent years, even overcoming a temporary crash in March of 2020. The strength of the market rebound and rise is due to a combination of new money being printed, greater interest and accessibility from casual investors in the stock market, and the Federal Reserve shifting its focus into helping securities during a crisis. 

Given the potential opportunities and money being made, it may be tempting to dive straight into the stock market. However, uneducated and inexperienced investors will have a rough time beating an even more competitive market without proper strategies and structure. You don’t want to take a gamble and lose your hard-earned money, so we encourage you to invest in some education so you can become well-versed in the ways in which active traders can profit consistently and better their financial future.

Passive Vs. Active Investing

The past performance and current strength of the stock market do not guarantee great returns for solely parking money in stocks. Sure, if you found the absolute bottom in March 2020 and had the conviction to invest then, almost everything has gone up. Now that the market has inflated to new highs, it takes well-educated active traders to succeed in almost any trading style. Similarly, the type of returns that can provide you financial freedom and become a career are mostly from active traders. Here are some of the traits of passive vs. active investors:

trading on a computer

Passive Investors: 

  • Are investing for the long term, employing a buy-and-hold strategy
  • Utilize index funds more often than active traders to diversify
  • Usually not trading for income; small returns back other cash flow
  • Typically net around the overall yearly market returns

Active Investors: 

  • Trade often, buying and selling positions for quick growth
  • Utilize more forms of securities and different markets
  • Can play both the upside and downside of markets, including hedging
  • Have more risk, but far more reward available than passive investors

There can be some ideological overlap, and you are not forced to only employ one strategy. In fact, we encourage a full financial education to highlight how your active trading career can help fuel your longer term investments. Learning the pros and cons of both strategies will help reinforce your baseline for all investing. 

Average Rate of Return

There is no such thing as a sure bet in any market. The average rate of return for passive investors has been a general guideline for those looking to park their hard-earned cash for retirement or long-term goals, but that metric is always changing. Similarly, it was much harder to be an active trader in eras past – the fees were higher, the technology was worse, and the market conditions were different. The generalized rate of return for the S&P 500 is about 10 percent, but when you take inflation, fees, and a bit of variance into account, most passive investors are getting about 6-8 percent in reality.

The game is different for active investors, however. With significant market upheaval, there are chances for enormous returns, and the rate of return should be a measured calculation that you strive for based on your trading strategy. 

The difference in the two strategies sharply illustrates the competitive nature of the stock market on a daily basis. If you are an active trader, you will be looking at plays that are based on charts, setups, news, and catalysts. As a passive investor, you do not have to do anything – but your fortune lies in someone else’s hands.

Ultimately, if you are looking for financial freedom, you must be willing to take on the risk of active trading while simultaneously investing in yourself as a business. This means pursuing coaching, studying your own results, and working towards a system that lets you return numbers that will empower you financially.

how to start day trading

Trading in Today’s Climate

Each day brings a new version of the stock market; that’s why it is so difficult for inexperienced investors to go it alone. The markets are at near all-time highs, meaning there can be uncertainty surrounding the direction they will go from here, especially after a global financial crisis. While we can’t predict the future, here are some things all traders can do to give themselves the best shot at success.

Maintain a Healthy Lifestyle

No one has the same brain, body, wants, or needs. However, we would highly advocate for getting enough sleep, eating a balanced diet, and exercising. Even if some of these things aren’t your main priority, don’t let trading cut out otherwise healthy parts of your routine or cause you overwhelming anxiety.

Create a Routine

Treating trading like a business is the only way to be a successful active trader. It will give you the most comfort, allow you to see the most nuances, and keep your mind sharp. You need to learn about market hours, what exchanges suit you, and the types of securities that fit your style.

Learn about Market Influences

The stock market does not function inside a vacuum; it is based on world events, valuations, and the health of the companies comprising it. Shrewd analysts who know how certain global events can dictate the direction of trades will have a significant leg up against passive investors or overly enthusiastic active ones. At the end of the day, you must trade the market presented to you, not the one you hope exists.

The common denominator tying these best practices together is that education and experience will always be your facilitators for growth. Getting help from professional courses, active traders, and teachers is a great way to springboard your success.

stock charts on computer

Educate Yourself for a Future in Day Trading

At StockAbility™, we pride ourselves on having a diverse suite of courses and teachers that have helped inexperienced investors become successful day traders. We harbor a community that grows together, and allows our members to achieve financial freedom for a better life.

If you are interested in learning how to become an active trader to accomplish your financial goals, there is no better time than the present. Sign up for a free webinar or one of our classes today to invest in your future.