Written by Katie Gomez

Traders are constantly taking beatings from the market they could easily avoid by preparing ahead of time. Understanding how to best deal with the transition between bull and bearish markets is one of the most important things a trader must deal with by preparing themselves to cross over into the next period smoothly—ready to buy or sell at a moment’s notice. Read on while I review how to make your transition from a bear to a bull market (or vice versa) as smooth as possible. 

The best way to stay on top of which direction the market is heading is to first keep tabs on what people are feeling about the market; you can do this by looking at charts. Charts are a trader’s best friend because they are the best indicators of human emotions, such as greed and fear. Unfortunately, the general consensus remains critical to a trader’s success. Therefore, be willing to bide your time before making a risky move. We can’t just snap our figures into a bear or bull market. We have to wait for the market to advance before making any big moves. That said, rather than focusing on our individual bias or what we want to happen, we should better spend our energy conducting research, processing the information we have now, and practicing patience (one of the most challenging things for traders to do).

What does history tell you?

In these periods of limbo, you would also be wise to look back on previous transition periods to see what kind of moves you would be better off making. Although past transitions can’t predict the future, history can be a relatively strong indicator of what may come. By studying historical market transitions from bear to bull markets, we gain insight into valuable lessons to better inform our future decision-making, such as:

• Discovering patterns and trends.
• Analyzing how different sectors and stocks performed during those times.
• Identifying potential strategies (what works & what doesn’t).

Remain disciplined and move forward as planned.

Don’t let your emotions run amok and throw a wrench into your trading plan, because that is when things can start to spiral. Emotions tend to run high as market sentiment shifts. Still, impulsive decisions based on short-term fluctuations will only harm your portfolio in the long run, and we always have to prioritize our long game as traders. If you can remain disciplined, follow your predetermined trading plan, and just wait it out, you can manage this transition period more smoothly. Although getting caught up in the market noise or speculation is tempting, the best traders know how to keep their composure.

How to safely adapt and align to market changes 

As time passes and you feel confident about the looming market direction change, start making minor tweaks in your plan. Small shifts in alignment can set you up for success without having to turn your entire trading plan upside down. Therefore, the best thing you can do is evaluate your existing trading strategy and consider tweaking it to adapt to the future bull shift without putting your current investment portfolio at risk too much. 

That said, this process may involve adjusting your risk tolerance to indicate changes in position sizing or trading timeframe for the time being to capitalize on this transition period and potentially maximize your profits as the market moves forward.

Manage risk effectively. 

Of course, when making these tweaks to your plan, make sure to take the proper precautions to manage your risk effectively by using stop-loss limits/orders and profit targets to protect your portfolio. Additionally, transition periods are known to be unstable and more volatile, so make sure you avoid taking excessive/unnecessary risks to set yourself up for success. Like jump roping, you have to be sure to step in and time the action at the right time, but ensure you have a plan also to get out safely. 

Stay informed.

The stock market may go through lulls, but it is constantly moving and changing, so it is up to us, as traders and investors, to keep up. Monumental things can change at a moment’s notice, but only those who make the extra effort to keep themselves in the loop at all times are the only ones who can take advantage of them. It’s easy to become overwhelmed by all the information we have to track, so what’s the best information to key on during these irregular periods between bull and bear markets? 

First thing, stay up to date on the current state of your portfolio and any limits or leniencies you can utilize to determine how risky you can get. Next, it is crucial to stay updated with news and events that can impact market sentiment. Information is more accessible now than ever, but make sure you filter the information you receive to make it easier to streamline.

In addition to following financial news outlets, it’s also wise to read market commentaries, pay close attention to expert opinions and other movements, and remain active on Reddit subreddits to stay in the loop. All of this information will better help you gauge where market sentiment or consensus is at and discover potential catalysts that could lead the transition from a bear to a bull market.

Keep your eyes peeled for early opportunities. 

The tail end of market transitions is a valuable time for traders to get in early on the newest opportunities. For instance, a trader should look for sectors or stocks in the early stages of showing strength, momentum, or any other growth indicators (bullish tendencies) to identify opportunities in a new bull market. On the other hand, if we are in a bull market and things start taking an overall turn for the worse in specific sectors, it may be time to take early advantage of potential selling opportunities before prices begin to drop. Ensure your research is thorough enough to determine if the stock or asset you have an eye on is fundamentally and technically sound. 

Those most prepared for change are ready to act when the time comes. Traders can never get complacent. To beat the market, you must keep on your toes at all times, which can be stressful. Set yourself up for success for these transitionary periods by looking back at past examples, remain disciplined with your plan, make subtle alignment changes, and become better adaptable to a new market. Although it takes time and practice, by managing risk effectively and staying as informed as possible, the more seamless these transitions will become. Before you know it, they will be so smooth they appear as a mere blip on your radar. 

References 

https://seekingalpha.com/article/103882-the-transition-from-bear-to-bull-market  https://www.morganstanley.com/ideas/bull-bear-signals