How should traders trade on Budget day; here is what experts say

On Budget day, heightened market volatility can make trading challenging. To navigate this, experts recommend key strategies to manage risk and trade effectively. Here’s what they suggest:

Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities

• Avoid the temptation to react to every move in Nifty or Sensex. Only enter trades when a well-defined setup aligns with your strategy


• Steer clear of excessive leverage or concentrating bets on just one or two stocks. On budget day, sectoral announcements can have a significant impact, so better to diversify


• To minimize drawdowns from sudden reversals, always keep your trades hedged


• Avoid counter-trend strategies unless backed by strong confirmations


• The market offers 364 more trading days—be selective and focus on protecting your capital. If a trade moves against you, exit with discipline instead of holding onto losses driven by emotions

• Usually, a high VIX presents an ideal scenario for derivative traders and option sellers looking to maximize gains from volatility. However, with a VIX in the high range of 17-18, buying expensive option premiums may not be favorable, as even if the market moves in the anticipated direction, a drop-in volatility could lead to a premium crush, limiting potential profits or losses


• To trade the volatility effectively, traders should adopt strategies that benefit from volatility contraction, so a balanced approach, combining both option buying and selling—such as a ratio spread or a directional butterfly spread—can help leverage the volatility crush while providing protection against extreme price movements


• Keep in mind, proper position sizing, aligned with the trader's risk appetite. Incorrect position sizing can leave a trader vulnerable to extreme market swings, potentially leading to significant losses that may take months to recover.


• Additionally, when executing orders, it is advisable to use limit orders rather than market orders. This helps in preventing execution at unfavorable prices and minimizes slippage, ensuring better control over entry and exit prices due to sudden price movements

• The market can have extreme volatility, hence stop losses is mandatory. Keep strict stop loss.


• You may change the stop loss basis market conditions


• Keep an eye on sectors where govt subsidy are announced. These stocks will have advantage and can overturn quickly


• Do not get into sentiment trading, keep your position size smaller.


• It is always good to book smaller profits