How To Trade Stocks during Bull Markets, Consolidations & Bear Markets

How To Trade Stocks during Bull Markets, Consolidation & Bear Markets.   The are quite a number of different stock investing strategies. We can choose which ones fit us best. But sometimes the choice isn't all about what we want.  The stock market is a chaotic place. A lot of things can happen. And, like most other things in life, different situations call for different actions.  Day Tading, Swing Trading, Position Trading, Buy and Hold, Contrarian, Value Investing.
The are quite a number of different stock investing strategies. We can choose which ones fit us best. But sometimes the choice isn't all about what we want.

The stock market is a chaotic place. A lot of things can happen. And, like most other things in life, different situations call for different actions.

To be honest, cost-averaging over the long-term is still the best approach. It's easy, simple, hassle-free, and - best of all - emotionless. Emotionless until the euphoria of finally pocketing your gains, that is.

But there are times when your goals are not so long-term. And times when, after a long-term investment, you may be looking to end on a "high" note, so to speak. Or perhaps your goals are just too steep, and by necessity are forced to maximize your earnings.

If one of those is the case, it pays to adjust your strategy to the situation at hand.

The Good


Bull Markets are basically great uptrends. Stock prices keep rising, company earnings keep rising, and the economy is growing. It feels like a virtuous cycle.

As you will hear from any trader, you don't need to be a genius to make money in a bull market. In fact the best way to profit is to simply wait it out.

  • Day Trading and Swing Trading can work too, since most stock prices are rising. But they might not be the most profitable approach. 
  • Position Trading can work very well too.
  • Buy and hold typically works well (assuming you picked a good stock).
  • Contrarian investing would probably not work, except for very select stocks. Unless you're near the end of the bull market or you're willing and able to hold such a contrarian position for a long time.
  • Value Investing can also work. However, most of your buying may come at the start. By the middle of a big bull run, prices may be mostly at fair value or overvlued altogether. 

The Bad


Consolidations are when prices go up and down in a given range. It's typically described as trading "sideways". These might be periods of uncertainty or may come after a rally or as a break in a correction.

  • Day Trading may work, if you can time it right.
  • Swing Trading is tailor-built for such a market, however, and should be profitable.
  • Position Trading can work over a long enough time frame. However, if you bought at the start of the consolidation and sell before a bull run sets in, profits may be lackluster. 
  • The Buy and Hold strategy can suffer from the same problem.
  • A Contrarian approach may work, depending on what happens after the consolidation.
  • Value Investing would work too. As long as you're prepared to wait indefinitely

The Ugly


Bear Markets are great downtrends. The economy may be stalling, suffering or in recession. Company earnings may be getting smaller or staying the same. If it's growing, it might be too small or not large enough to counter a bad (or at least perceived to be bad) economic climate. Rallies do happen (bull traps!) but prices eventually keep getting lower.
  • Day Trading can work, if you can accurately anticipate the moves.
  • Swing Trading can work too, but caution is needed. Trading is most likely not sideways but instead downward. Profits in such an approach may be be lackluster.
  • Position Trading can work - but a long time frame is needed. Essentially you need to wait things out: confirm the bear market, buy very cautiously and staying mostly in cash, wait for the confirmation of the bottom, and be prepared to go long. If timed correctly, and with a long enough time frame, you might be holding a very profitable core. 
  • Buy and hold can work too, but with the same approach - cautious buying and long time frames.
  • Contrarian investing can work, provided you are willing and able to hold the position for a long time.
  • Value Investing works incredibly well. Profits may not come for a long time, but this is the best time to acquire undervalued companies.  

While I've made recommendations as objectively as I can, it's impossible to disregard certain biases:
  • Day Trading is just not something I'd recommend to anyone - ever. It can work, but I'll leave it at that.
  • Contrarian investing just takes a heck of a lot of guts. I do not doubt its effectiveness, it's simply hard to recommend as an approach. Because of the high conviction necessary, it is primarily an individual's choice.
  • Value Investing - who am I to refute Warren Buffet? So yeah, it works every time if you do it right.
  • Position Trading is one of my personal choices. That's not an endorsement; that's a warning.
  • Cost averaging over the long term is still the easiest, simplest, hassle-free, and worry-free approach.


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photo credit: Daniel Y. Go via photopin cc

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