Trading During Bullish Markets: Buy or Sell?

Did you hear about the two bulls at a dinner party talking about the stock market? Yes, that's a joke!

A bull market is when shares are rising, or expected to rise. The rule of thumb is that a "bear market" is constituted by an appreciation of 20% or more.

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A bullish environment can be anticipated by engaging with technical analysis and studying various patterns and trends.

The latest example of a bull market is the post-pandemic boom that occurred amid zero interest rates and trillions in fiscal and monetary stimulus injected into the financial system. The previous bull market started in March 2009 and lasted until the early days of the COVID-19 public health crisis, resulting in a 323% gain for investors.

Buying vs. Selling During Bullish Markets

Buying

When you are buying equities during a bull market, your potential gains might depend on when you execute the transaction. So, if you purchased shares of a mega-cap stock in the early days of the bull market, your investment could have gained some potential profit.

However, if you acquired shares in the late stages of the bull market, your potential profit would be much less.

It is also worth identifying bull traps and other bull market risks. If investors utilize technical analysis, they might keep buying the dip, although the stock's fundamentals may not be strong.

Still, if you are a long-term investor, there is nothing wrong with buying any significant drop in share valuation, especially if you are confident the security might keep rising during the current market trend.

Selling

Profit is not guaranteed when selling in a bull market and depends largely on what tactics you are employing. If you are routinely losing money during a bull market, it could be because you are trying to time the market, buying during double-digit rallies and selling on the decline out of fear, or the investment you have chosen might not be participating in the bull run.

That said, if you invested during a bear market—the exact opposite of a bull market—and purchased at or near the bottom, it is likely that you could close the position and enjoy the potential profits. However, the chief concern is that you might be closing your position prematurely and hurting your potential profit in the long run.

4 Strategies for Trading During Bullish Markets

1. Look at Index Funds

Index funds pool together all of the high-quality stocks, from Microsoft to Walmart, and allocate whatever funds you choose to use accordingly. Spreading out your trades through a variety of different options may help mitigate some risk.

» See our list of the available indices

2. Adopt an Investment Strategy

The problem with bull markets is that they can surprise in both directions. This is why it is crucial to adopt an investment strategy that identifies entry and exit prices. Sure, you could leave some money on the table by prematurely exiting, but you do not have a crystal ball, and it is better to turn a profit than a loss!

Moreover, if you do not want to wait too long on your losses, you should identify a price at which you are willing to abandon the trade.

3. Invest Gradually

Bull markets can last years, so there is nothing wrong with investing in phases. In other words, you are gradually opening positions and could potentially get in a good price before they change significantly.

4. Have an Exit Strategy

In the end, you want to devise an exit strategy, so you are not left holding the bag. Indeed, your personal bull run should consist of prices you want to reach, the length of time you want to hold, and what metrics you want to monitor to determine if you are staying in or heading for the exit doors.

A common mistake is when the fear of missing out (FOMO) comes into play. This was common during the meme mania in 2021 when newcomers saw shares in AMC, Gamestop, and others spike 30 percent in a single session and decided to buy during the upswing.

This is perhaps one of the worst mistakes you can make in trading because these overbought conditions ultimately lead to intense selloffs, especially for highly speculative stocks.

This is the trouble with short-term trading, even during bull markets. You can easily fall for the FOMO and lose sight of your long-term goal of buying low and selling high. Indeed, there may have been nothing wrong with buying AMC at $10 if you have high hopes for its long-term prospects.

But if you are buying at $10 and then selling it at $3 a couple of months later, this is not a sound strategy.

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Bullish Markets Are Not Permanent

As we have seen countless times, bull markets can flip on a dime or head into a temporary downturn. Therefore, traders need to be aware of this possibility at all times. How can you determine if the bulls are being devoured by the bears?

Typically, you can figure out that the end is near by noticing developments like high volatility or rising commodity prices. In the end, it is important to remember that ups and downs are inevitable facets of the financial markets, but they have always revealed a terrific ability to recover.

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