How should you invest when the market is bullish

 When the stock market makes front page news regarding the high indices and gains in the market cap, investors begin to keep a close watch on the market. Especially small and retail traders, investors. High indices and marginal participation of investors in the markets is not always a good news. New equity investors are many a times drawn in by the gains that people around them are making and aiming for a similar return they end up making costly mistakes. Here are some of the strategies that should be followed while investing in a bullish market:

1. Your financial plan must guide you

Your financial plan helps you with how much allocation is required in debt, equities, gold, liquid assets etc. One must stick to their financial plan and the moment your allocation exceeds the line one must try and bring it back to original. This method will automatically ensure profits at richer valuations and have liquidity when the cheaper ones become available.

2. Stick to a quality equity portfolio

At the rise of the bull market you will come across many good, bad and ugly companies in the market. As the market begins to mature you will notice that the market is becoming more selective and is rewarding only specific companies with higher valuations. The most important rule of a bull market is moving towards quality, shifting to safety with the rising market valuations.

3. Don’t wait for a long time on your losses

One of the problems of the bull market is that they surprise you on the upside as well as on the downside. One of the best way is to mentally prepare an exit at a particular price. Which could either be the technical support level or a price beyond which you are not willing to risk your money. Whichever way, a loss booking discipline like stop loss etc is a vert important bull market technique. 

            
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4. Adopting a phased investing approach

The old SIP approach is the best working way in a bull market. You may wonder why, after all its better to buy in lump-sum and then hold it till eternity in a bull market. Well it is easier said than done. While investing in lump-sum you are never too sure of the correct level to enter the stock. You may either wait for overly long time period or you may enter a stock and regret the decision too soon. A phased investing approach is a better option while investing in bull markets.

5. Adopting a phased selling approach

Just like a phased investing approach, you also need a phased selling approach. While exiting a stock, the higher you get the better it is. If you adopt a phased approach to exiting a stock then you are more likely to end up with a much better price, in a bull market. Which means you may not always catch the top but each successive exit decision might happen at a better price. Timing your exits to perfection is something you should not be worried about.

6. Keep your profits churning

There are many investors who wonder whether churning or booking profits is consistent for a long term approach or not. It is true, there is one basic and important rule of stock market trading that “If something in the market is too good to be true then it probably is not true.” You must keep in mind the same principal when the markets are maintaining a bullish route. You should keep taking profits at a regular interval although you can always re-enter that particular stock at higher levels. In a bull market, profit is what is booked; all else is just book profis.

7. Use various options to hedge your risk

Futures and options trading might help you manage your risk in a bull market. In a bull market you may never know when will the markets correct sharply, so the best you can do is to protect your downside risk by purchasing options for further protections. Here the options are low cost protection against losses and you are only giving a small portion of your profits to insure your portfolio. 

8. Be on the market momentum side

One of the very important rules that must be followed by small investors in a bullish market. The bull market is not uni-directional. The momentum is up as long as the bull market is intact. You should always stay on the momentum side. So you can buy high and wait for the stock to reach higher, or you can also use dips to buy. Whichever way, you should never try to outguess the market. In bullish market the idea of selling against momentum can land you in big losses. Momentum is nothing but a message that the market is trying to give, if you feel the opposite then the market surely knows something you don’t know and listen to what the market is trying to tell you.

To sum up

In bull market also, small investors should focus more on long term and also must ensure that they get their basics of profit booking, cutting positions and market momentum right. Each and every bull market brings some narrative on why a specific cyclical industry has turned the corner and will be a secular growth story and you should not fall for that. You should be able to understand both the bull as well as the bear market cases before your money in. And you should make your personal judgements before investing in any company and not on the public mouth or others investment strategies.