June 16, 2024
This article explains why making money in bull market is difficult and how one can overcome

Beware of Bull Market: (You can actually lose money than making it)

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Being an active investor and making money consistently in the market is not an easy game. A passive investor can at times make more money in the market without doing any research and analysis and more importantly with the peace of mind. By passive investor I mean “ an investor who has no knowledge about the market moves but consistently invests every month through SIPs in mutual funds irrespective of the market direction “. 

It is true that active investors seem to make more money than the passive ones, at times. But, the sad truth is most active players perform poorly in the long run and most fail miserably to beat the index. They perform even worse during their much awaited bull runs.

An actively managed portfolio is very difficult to generate profits consistently. I am not saying this on a negative note. But, we should understand how much effort is needed to generate consistent profits that beat the index year on year. This can be understood if we see how many actively managed Mutual funds beat passive index funds in the long run. 

See the image below:

One can see how the probability of continuously beating index by active fund managers goes down as the time increases:

Explains how the performance of actively managed funds performs poor when compared to passive funds

 Source : Financing Life.org: 

In this article I will share my thoughts on why the bull market is the toughest to make money and what we can do about it.

Getting carried away by success:

In a bull market it is common to see 100-200% profits in a position easily. However, we should remember that the percentage gain of individual stocks is only a small part of our portfolio. 

For example, let us assume that the investor invests a capital of 10 Lakhs  in 10 stocks. Equal amount  that is 1 Lakh is invested in each stock.

In this case, even if he gains 150% profit in a trade, his portfolio grows by only 15%. In that gain of 15% he will be paying a tax of 15% in case of STCG(Short term capital gains-assuming most active traders close their positions before a year)

So, the net portfolio gain becomes only 12.75%

See the table below: 

The table is an illustration of how the net profit after tax impacts the portfolio growth:

Trade PositionsTotal profit / loss percentage before taxNet profit / loss percentage after tax (15% STCG Tax)Net Portfolio Profit percentage
Position 120%17%1.7%
Position 2-15%-15%-1.5%
Position 3-30% -30%-3%
Position 460%54%5.4%
Position 550%42.5%4.25%
Position 6-20%-20%-2%
Position 7230%195.5%19.5%
Position 824%20.4%2.04%
Position 9150%127.512.75%
Position 1080%68%6.8%
Total Portfolio Profit45.94 %

As you can see in the above table, the trader has gained massive returns of 50% to 230% in some of his trades and suffered losses in only three trades that too not more than 30% in a single trade. However, the net portfolio value has increased to 45.94% only after tax. 

Now, we should be clear on why even after we make 100,130,150,200,300 % gains in some trades the growth of the portfolio will be slow. So next time you make a 100% gain in some trades, don’t get carried away. If you have 10 positions equally invested in your portfolio it is just 10%. So, be grounded.

Flooding of opportunities:

When the market is in a bull run, all sectors break out. If you are a breakout kind of trader you will see that most of the stocks break out of their consolidation zones. 

Your screeners will give you 70-80% of the stocks traded in NSE as filtered results. 

When such huge options are given to you you will be confused on what to focus and what not to. The perfect example of this is, it is easy and less time consuming to buy a dress at our local textile shop than shopping in a mall. Agreed, that you get wider variants in a mall than the local shop. But your mind gets blocked at times seeing that many options and sometimes you even end up buying nothing. 

This is why you should have clarity on which sector to focus and how to time the sector and then pin down to individual stock.

Inability to sit tight:

Once we enter a position and the stock moves 20-30% higher, we usually get elated. A feeling of happiness and restlessness creeps into us. We will be watching our stock moving daily, up and up. Even though we know that the stock moves in wave form and it will take some breather, in a bull run an active trader gets easily distracted.

Always, remember that the sector that moves up first at the start of a bull market usually stays the leader for the entire cycle. After the covid fall, the leader was IT sector and it remained at the top till the nifty topped out recently from Jan 2022. 

See the image below: Weekly chart of CNX IT:

Sector leader From April 2020-Jan 2022

As you can see above, the sector ran a fantastically taking some breather (consolidations) in between. However, during this entire bull run, different sectors would also have broken out at different intervals. As an investor we would love to follow money and some of us would have taken positions in other sectors by closing the positions in the IT sector. This is completely wrong.

See the image below: Weekly Chart CNX Media with 200 weekly Moving Average:

The media sector (weekly chart) broke out in September 2021 and it is now in the same price range after a year. 

So, finding a sector leader may be easy but sitting tight once our positions start giving out profit is a different ball game.

Sharper and deeper pullbacks:

Once the stock moves and we are comfortably sitting in a profit we would not want to give it back to the market. Even a small pullback can be misunderstood as topping out and one may exit positions. This approach is completely wrong. We should be ready to give back to the market in a calculated manner if we want to ride massive trends. 

One should have a better plan to exit the position. Exit plan may be based on anything like RS Based, Moving average based, Pivot based, Percentage based, Volatility based etc,. Until that, one should not exit the position, come what may. 

See the below chart of Nifty 50. See how deep and sharp were the pullbacks all way up:

Sharp pullbacks and shakeout in bull market

The most difficult part to manage in the bull market is the sharp pull backs that will occur all through the run. The pullbacks will be sharper and deeper creating doubts and shaking out weaker hands. Once the weaker hands are washed off then the run continues. That is why trend following is the biggest friend. The adage may be old but it is the truth.

Sooner you learn this, the greater you will achieve.

Hesitation to initiate positions:

If you don’t manage to accept sharp pullbacks and exit the position very soon, the next problem comes. That is hesitation to initiate new positions when the opportunity rises. The fear of recent loss makes one wait for a better opportunity. 

And when that better opportunity comes, doubt and fear comes again and we avoid taking the position. Most of this problem can be avoided if you have planned your position sizing properly

Failure to accept when the market trend reverses:

This is another problem that has to be addressed with seriousness. The confidence that success gives is good but we should find that thin line where the confidence becomes over-confidence. Always, believe what the market says. Have some plan when the trend reverses. 

We don’t generate trends, we just follow trends. There are many of us who fail to understand when the market reverses. We don’t want to give back the money we gained back to the market. We hold the positions tight even if it is falling greatly only in the hope that the market will turn around someday. In the end some give up all the profits. If you are frequently losing trades and you are not getting consistent results it may be because you are not analyzing the trades with deeper insights. Having a robust trading journal is a must. I had explained “How to make a perfect trading journal for free” in the article here. You can check it out.

Mark Minervini says:

“Once your stock that was in a huge profit comes down a lot, at least sell when it goes below your buy average. It may seem that you are a fool to miss such huge profit, but you will become a greater fool if you let your once profitable trade go into a loss”

Limiting drawdowns will increase your success rate tremendously.

Failure to understand the psychological make up:

The last but important goal is to understand our psychological makeup. One may think that they are good enough to trade and invest. But, deep inside the prime motive to enter the market, may be to gain super quick money and not the love for the market itself.  One may not have that much interest in putting efforts daily, and they may lack enthusiasm. Ask ourselves whether our interest is the market or our prime focus is on money? 

If money is our prime focus, we can achieve it in many ways. We can do wonders in following our passion. If the market is your passion, then no one can stop you. So, we should make our mind clear before we plan to become financially free.


“All the points discussed above are not to discourage anyone and to say that one cannot make money in the market. When I started investing I felt these things are the most difficult to manage in a bull market. I am just sharing my thoughts through my blogs and I consider myself only as a humble student of the market, with a willingness to learn daily through everyone I come across. Thanks for reading. You can subscribe to me for newsletters, if you like my writings. Happy Investing”

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