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Highlights
- A bull market is referred to as a period in financial markets when the price of a security rises continuously.
- The most common definition of a bull market is when share prices jump 20% after two falls of 20% each.
- Small investors generally get anxious during bullish conditions since It’s difficult to predict consistently when the trends in the market might change.
A bull market is referred to as a period in financial markets when the price of a security rises continuously. The most common definition of a bull market is when share prices jump 20% after two falls of 20% each. During bullish market conditions, investors and traders employ a range of strategies to make profits. Generally, the term bull market is used to refer to stock markets, but can be applied to bonds, real estate, currencies, and commodities.
Small investors generally get anxious during bullish conditions since It’s difficult to predict consistently when the trends in the market might change. Psychological effects and speculation can also play a large role in the markets.
Here, we discuss five things that investors can do during a bull market rally:
Buy and hold strategy
Investors take advantage of bull market by buying early at lower prices and selling later when prices have hit the peak. The other common strategy is to buy and hold securities, to potentially sell them at higher prices later. However, investors need to have certain amount of confidence while executing the strategy since it is difficult to assess the state of the market going forward.
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Aim for a quality portfolio
It is generally seen that many fundamentally lesser sound companies also rally at the start of the bull rally, along with other good companies. Investors should be vigilant of the fact that the markets become more selective in rewarding only certain companies with higher valuations as the they mature. Thus, you must aim for the quality stocks for your portfolio.
Keep booking profits
There is a famous rule in the stock market: “If something is too good to be true, then it is probably not true”. Thus, booking profits during the bullish market is consistent with long-term investment strategy. You must book profits at regular intervals.
Full swing trading
Full swing trading is the most aggressive way to make most of the bull market. Investors employing this strategy play very active roles, using short-selling and other techniques to squeeze out maximum gains as market trends can change quickly.
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Hedge your risk with options
The best you can do to hedge your risks in the bullish market is by purchasing put options. However, you need to spend a little time understanding the basics of options since they can be complicated in the beginning. In addition, options provide a low-cost protection against losses and investors are required to give away a small portion of their profits to insure their investment portfolio.
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