Lately, I’ve been charting and trading the JSE Top40 index.  The market’s movement reminds me of the time between 2020 to 2022 when we experienced a strong rally.  The index was making higher highs and higher lows, reaching all-time highs.

By all accounts, these are typically signs of profits looming on the horizon. However, this type of environment is one of the most dangerous for learning to trade. It can trick you into thinking you can do no wrong and that you’re a stock market maestro in tune with the market. It feels like everything you touch turns to gold and that you’re money-making machine.

This is where bad habits start to form. The most common is letting losers run beyond stop-loss levels and doubling down on them because they almost always recover and move higher. This behaviour makes you feel like a genius who isn’t easily shaken out of positions by minor reactions in the market.

Another bad habit is placing large bets, beyond what the account or the trader can handle. These of course work in favour of the trader, because hey, big profits. Traders do this when they start feeling like they’re on a streak (which in a bull market they often find themselves in) and can’t lose. As the profits roll in, overconfidence grows.

Unfortunately, these are the habits that create the boom-and-bust cycle. They can lead to traders losing all their gains from the bull market when the market inevitably turns.

I want to remind traders, especially newbies, that discipline remains important –  even in a bull market. While buying dips, placing large bets and adding to losing positions (because they “always recover”) might seem like a winning strategy, it’s not.

Remember, nobody rings a bell at the top. The music does eventually end. So instead of developing bad habits, focus on building a profitable, disciplined approach while markets are favourable. This will help you weather the storm when the market turns.

As the saying goes, “Everybody is a genius in a bull market”

Traders share a peculiar characteristic: they’re fiercely competitive, but only with themselves. In practice this means that they see every outcome as an opportunity to learn, and they’re brutally honest about both their failures and successes. This also means that they’re hungry for knowledge. They don’t sleep easy with unanswered questions. And they’re seldom satisfied with just one answer.

Njabulo Nsibande is a founder of Village Trader, and Sakha Ingcebo investment club. His interest in trading began in 2016, alongside a rash of Instagram ‘fx traders’…

Find him on Twitter: @njabulo_goje.