EspressoLogy

Often times when investing, we encounter the terms “bull” or “bear”. These seemingly simple terms are an interesting way to define some important market conditions. Bull markets are those that are on the rise, whereas bear markets are those that experience a prolonged decline in prices.

Deep diving into bull markets today, these markets are characterised by the rising prices of assets, securities and stocks. Investor sentiment is typically highly optimistic during a bull run, which may last for months or even years at a time.

Investing in a bull market is, however, not for the faint-hearted or uninformed, regardless of whether you are a beginner or a seasoned investor.

Read on to find out the top rules of thumb when steering through a bull market.

Create a Trading Plan

Before you set out to trade, create a trading plan. Trading plans help you to execute your future decisions based on stock performance. A common observation in bull markets is that delayed decisions can be detrimental and result in heavy losses. One must act swiftly when stocks move fast. Having a trading plan in place will allow you to make quick decisions that aren’t rushed but are instead in your best interest. They’ll help control your losses too!

Strategic Entries

Bull markets can make investing in every rising stock tempting. But one must remember to be strategic. Initially, most companies rally with the market, but eventually only a few are rewarded with higher valuations. And while there is no right time to enter a trade, investors often meet with disappointment because they either invested too late or too soon. One way to tackle this concern is by investing in phases. Phased trading will enable you to work around any “too soon” or “too late” investments and get the most out of them.

Strategic Exits

Simply investing strategically in a stock isn’t enough. One must also know when to exit a trade at the right time. Reversals are common in bull markets – keep an eye out for any shifts or changes in patterns. It will help you exit a trade at a point where you can protect your profits or minimise losses. Just like with phased entries, you can also adopt a phased approach to selling. Your first exit may not be the highest catch, but with every subsequent exit, you’re bound to get a better price than the previous one. You can also keep price targets as part of your trading exit plan. However, it would be best if you don’t rely on them blindly, as there’s no guarantee that a stock will ever reach that target.

Book Profits Consistently

Booking profits at regular intervals may not be an investor’s top priority during a bull market, but believe us, it’s essential! You may be following a long-term strategy, but a long-term investment can be an investment loss. You must know that bull markets too are hit by downward moves and corrections that can go against you if you don’t churn or book profits regularly. Failing to book profits on time often leads to easily avoidable losses. Plus, booking profits doesn’t have to be the end of the story. You can always re-enter the same stock (at lower levels) and keep the trade going.

Observe Patterns

When in a bull market, remember not to invest in every other attractive deal! Be discerning and watch out for patterns. To avoid entering random trades, you could use strategy and research. With the help of technical analysis, tools and indicators, you'll be able to study the market well, look at stock movements, identify patterns and trends, and ultimately find the best stocks to invest in.

The Bottom Line

Bull markets are a good indicator of a strong economy and robust employment rates. It excites investors, builds confidence and encourages more and more people to invest in a booming stock market. When in a bull market, remember to stay focused on the long term. Keep the mentioned pointers in mind to take advantage of the massive opportunities that this type of market provides. Try not to get too comfortable, though. Inflation and recessions are unpredictable! Always be prepared for market volatility and plan your trades accordingly. Be prepared to adapt and improvise quickly.

Happy investing!

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do’s and Dont’s issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Brokerage will not exceed the Exchange prescribed limit.