The starting point of Wealth Creation is during Bear Markets and how we respond in the next 6 months will decide how we will do in the next 6 years.
As life starts adjusting to the new normal and the current derailed economy is put back on its track, equity markets will be keenly watching these developments as they take shape across the world. Technically, markets are done with the first phase of this cycle completing the fastest fall, a measured pull back and now the consolidation.
Equity markets globally are yet to enter their base formation phase and undergo time correction. The level of 9,000 for the Nifty becomes very important as it is a major support of the decade long bull market. The level of 9,000 also acted as a base for the last leg of the previous bull market from 9,000-12,400. In this new normal, we feel these big swings will continue to happen and this will be a very good trader's market with abundant trading opportunities on both sides.
As a trader, one can adopt the following strategies to navigate the current volatile period in the markets:
2. Right Position Sizing: Use diversification and adjust quantity as per the beta of the stock
3. Live by the Day, Die by the Day = More Intraday Trading. Don’t carry your losses for more than a day.
4. Short-sightedness: Trade 200-300 points on the Nifty at a time and follow the process of chunking your trades into smaller ones.
5. Average Winning Trades and use Trailing Stoplosses.
6. Investor – 6M SIP or OTM Monthly Put writing strategy in your favorite stock and if the stock comes down then take delivery at a discounted price as compared to the beginning of the month. If it doesn’t come down, then you can retain the premium from Put writing.
7. Predict or Panic or Follow & Flourish – Be trend follower and make trend your best friend.
Markets are a great discounting machine and we feel that markets have discounted a lot of the virus based negativity in the first phase. However, as we get more positive surprises or negative shocks, markets will take further course from here. Technically, Nifty remains bearish below 9,200 and has supports at 8,600 and 8,200 on the downside. Bear Markets provide lots of trading opportunities due to the added volatility and speed and we strongly believe that this market will be a trader’s paradise for both bulls and bears. Lastly, the starting point of Wealth Creation is during Bear Markets and how we respond in the next 6 months will decide how we will do in the next 6 years.
The author is Associate Director & Head – Technical & Derivatives Research at JM Financial Services.
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