Trading Strategies for a Bullish Market

A bull market refers to a market condition where the prices of assets are steadily rising. As the prices of stocks rise and fall all the time, the term “bull market” is typically used to describe an extended period when the prices of securities are in a sustained uptrend. This period can be months or even years. As Kavan Choksi mentions, many retail and institutional traders use the 200-day moving average of the S&P 500 Index in order to identify a bull market. When the 200-day moving average of the S&P 500 is sloping upward and the index is trading above it, the market is considered to be in a bull market.

Kavan Choksi lists four simple trading strategies that can be beneficial in a bullish market

Strategies for bull market trading are largely based on the expected prolonged rise in the stock market. Hence, traders generally go long in the market during such a situation. This basically means that they take a speculative position that matches the anticipation of an ongoing price climb.

Here are a few trading strategies one may follow in a bullish market:

  • “Buy” early in the Bull Run: The exact onset of a bull run is not easy to identify. However, the third touch of a price action on a single line is a good method to confirm its recent commencement. With an expected continued upward trajectory, it usually is a good time to take a long position. Early entry into a bull market allows the traders to capture more significant price appreciation. As the market sentiment turns bullish, prices will have more room to grow, and early buyers highly benefit from the entire upward trajectory.
  • Do not sit on losses for too long: Planning the exit beforehand can help in limiting the losses. Deciding to close the position if the price closes below the trend line is a simple way of doing so. Conversely, a trader may also choose to short-sell if they are expecting a decline, no matter whether it’s sharp, steady, temporary, or sustained in a bearish manner, if they think that the Bull Run has run its course.
  • Take profits at regular intervals: Trying to lock in profits at regular intervals can help the traders to secure better trading profits.
  • Follow the market momentum: One must always remember that despite the steady, prolonged increase of price in bull market runs, the market still does comprise of both rising and falling share prices. This basically means that it is possible to incur losses on a bull position in a bull market, or even make a profit on a sell position. Hence, as a trader, one needs to analyze the goings-on of a bull trend in a comprehensive manner before making a move.

As per Kavan Choksi, during a bullish market, many investors resort to a low-fee index fund that tracks an entire market like the S&P 500 with the hopes of capturing all the gains of the market. Savvy investors and fund managers also strive to beat the market average by picking stocks that grow more than others.

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