How to Trade Well in a Bull Market

Today I want to share with you some of the best trading advice i’ve received over the year’s from some of the most intelligent, smart and forward thinking trading professionals in the industry.

I have acknowledged with my students at our ChartLab trading academy the “rules of engagement for dealing with a bull market that’s in beast mode,” so let me highlight those for you now.

1. Take a profit

My No. 1 rule for my students is actually my most common saying: no one ever got hurt taking a profit.

In a rallying market like the one we are in, investors tend to forget that their gains aren’t really winnings until they ring the register. That can burn them when the market takes a hit. In a red-hot bull market, there are hundreds of stocks that you own with outsized gains where you’d be foolish not to do some profit-taking.

I’m not saying you should sell the whole position — I like this market too much, I just want you to understand that profits on paper don’t count; it’s not a real gain until you’ve taken something off the table.

2. Having realistic trading expectations and not risking in the markets what you are not willing to loose.

My rule No. 2, Something we tell our students often is to have realistic trading expectations when coming into trading. The worst thing you want to do is to float around with unrealistic expectations or worse no goals at all.

In a bull market it’s easy to start making money then forgetting that the market can be a risky place and you can potentially loose it all. The best play you can do for yourself is invest what you are comfortable with, if you are in it for the long term make sure you can weather a dip in the market without blowing your account and have actually enough equity left over to buy any dips.

Of course if you want to just be in and out of the market and master the art of price action trading then you should join our students in our trading academy.  Find out how now. 

3. Keep an eye out

My rule No. 3, You never know when an unexpected geopolitical or market-moving event might happen, so be prepared.

4. Take a profit

Cue one of My best-known aphorisms: “Bulls make money, bears make money, and pigs get slaughtered.”

While this rule applies more loosely for those saving for retirement, investors using their mad rip money should have some cash on the sidelines to be able to buy in at lower stock prices.

“These days, the conventional wisdom is that the only real money that ever goes into the stock market is retirement money. That’s supposed to go into index funds and it’s never supposed to be touched, no matter what. But I’m not telling you to mess with your 401(k)’s, but if you do own individual stocks in your discretionary portfolio … I’m saying take something off the table specially when markets rally hard.

5. Don’t add to a losing position.

Never add to a loosing position. Ignorance of the principle, or carelessness in its employment has caused disasters to many traders in the course of history.

Remember, nobody knows where a market might be heading during the next few hours, days, or even weeks no matter how good the evidence or technical analysis is. We’re right 60% of the time so that means 40% of the time we are in fact wrong.

There are lots of educated guesses, but no knowledge of where the price will be a short while later. Thus, the only certain value about trading is now. Nothing much can be said about the future.

Consequently, there can be no point in adding to a losing position, unless you love gambling. A position in the red can be allowed to survive on its own in accordance with the initial plan, but adding to it can never be an advisable practice.

6. Don’t go against the markets, unless you have enough patience and financial resilience to stick to a long term plan.

Ok, In general, a beginner is never advised to trade against trends, or to pick tops and bottoms by betting against the main forces of market momentum.

Join the trends so that your mind can relax. Fight the trends, and constant stress and fear will wreck your career.

7. Understand that trading is about probabilities.

Trading is all about risk analysis and probability. There is no single method or style that will generate profits all the time. The key to success is positioning ourselves in such a way that the losses are harmless, while the profits are multiplied.

Such a positioning is only possible by managing our risk allocations in accordance with an understanding of probability and risk management.

8. Learn to trade like a professional

That we have placed this so low in the list should not surprise the experienced trader. Faulty analysis is rarely the cause of a wiped-out account. A career that fails to begin is never killed by the consequences of erronerous application or understanding of fundamental or technical studies.

Other issues that are related to money management, and emotional control are far more important than analysis for the beginner, but as those issues are overcome, and steady gains are realized, the edge gained by successful analysis of the markets will be invaluable. Analysis is important, but only after a proper attitude to trading and risk taking is attained.

9. Stay diversified

Finally, different areas of the market may have their heydays at different times, which is why investors must stay diversified.

For example, if the market happens to tank, the drug and health insurance stocks might still able to log strong gains. But the industrial stocks, which may have been red-hot just, might see themselves taken down along with more of the other week’s winners. You will win some and loose some, but on average if you diversify out you will still be a winner.

Here’s the bottom line:

Do not be greedy, take some profits [and] stay diversified, since you never know what’s going to come from left field and send us lower. These are very simple rules to live by. Don’t screw it up

If you want to learn to trade like our successful students, you can learn more about our coaching here.


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