Your Trading Style in Volatile Markets

Hello friends. How are you doing out there? I hope the market is treating you well and I also hope that you have noted how the markets bounced back from the intraday lows on Wednesday.

This is in line with the video that I recorded on Tuesday evening and that was uploaded on Wednesday morning, saying that Tuesday's fall was actually not to be taken as any internal problem of the Indian equity markets, but rather triggered by external factors alone.

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Now, to take this trading issue forward, I want to basically talk about two distinct styles of trading.

Hypothetically speaking, if you've set upon yourself the target of making, say, for example, Rs 5,000 a day, how to go about fulfilling that target.

You see, the markets are sometimes trending markets, and sometimes they're chicken markets. That means they're stuck in a kind of a range where the prices don't really move much.

Now, in markets that are trending, you would want to take a very small exposure and wait for bigger price moves. So say, for example, you pick up 500 shares and you wait for a Rs 10 move. You've made your target of Rs 5,000.

In non-trending markets, which are sideways markets or chicken markets, you basically know that prices don't really move much. Therefore, you have to take a big exposure, say, 5,000 shares, wait for a Re 1 price move, cut your position whenever the price arrives and run.

But is it actually all that simple? Is it possible that to earn this Rs 5,000 even in a market that is trending, you might sometimes have to resort to what I call hit and run trading, wherein you take a small piece of the action because the risk involved is fairly high?

The answer is yes. The markets are digital beasts and the trends are fickle. They can change from hour to hour, sometimes even minute to minute.

Now I have for you two or three a graphic points that will extrapolate what I'm trying to say. First of all, take a look at the index and the stock futures volumes chart.

Now what you can immediately realise is that the futures turnover of the indices, which is Nifty, Bank Nifty, and the Nifty Financial Services index and on the other hand, the blue one, which is the index futures. The red one are the stock futures.

These are volumes on a cumulative basis, which means the July, August, and September series are taken together. What you can see is that since the last few days, the volumes on both the stock futures, as well as index futures, have hit a period high. The charts in question are of 20 day period.

Now, when the last couple of days have seen such huge volumes, it's not really rocket science to put two and two together and see that the markets were falling. Which means there is active participation on the sell side.

Whenever the markets are falling like this with huge volumes, volatility or the intraday price movement, the patchiness and sporadicness in price movement, is extremely high.

Take, for example, the freak price you would have seen on the Nifty Futures August series on Wednesday. That was eye popping. At any given point in time when you see a 200, 300, 400 point mismatch between July and the August futures in the Nifty, it should make you sit up and take attention.

Now these are extremely volatile times. Sometimes you can see prices shoot up and down without really too much of volume being traded. Those are illiquid counters. That's another worry. The markets on certain in individual stock futures are getting illiquid. It's only the indices, which are witnessing very rapid and heavy volume buying or selling.

But whenever volumes dry up and this is something that I have recorded in my earlier video the retail trader and the markets as well as heads up bank nifty traders, in those two videos also I have explained to you why ingress and egress, which is entry and exit, can become difficult for you when volumes dry up.

So the second chart I want you to see on your screen is the retail traders positions in the market.

Now the retail guys, when it comes to individual stock futures, longs, are holding 10,013,599 net long positions, which is longs minus shorts, as on Tuesday night.

Where index futures are concerned, they have a short position of 22,838 lots, which means the index shorts are hedging the stock longs but do remember that the index shots are merely 22,000 lots, whereas the individual stock futures lots are long by 10,013,000 lots.

So the retail guys are very gung ho. They have gone all out. They have basically built up huge, long positions in excess of one million lots. Let's take a look at who's selling to the retail guys.

On your screen now is a chart of the DIIs, the domestic investment institutions. Look at what they've done.

They're holding net short positions in individual stock futures of a whopping 11,082,381 lots and index futures are net short by 48,090 lots. So I could very clearly say that whatever the retail investor is buying, it is the DIIs who are selling to them.

Let's also not forget that even though I am recording this video on a Wednesday afternoon, by the time has uploaded on Thursday, you would know that today is expiry day. Both monthly and weekly index option series would be expiring. Therefore volatility is likely to be very high.

In such a market, what kind of a trader would I advise you to be? I think you should be a hit and run trader.

It is better to play for a rupee than wait for Rs 10 because the counter move, which can go against you, can be equally large, which means you're exposing your flanks to extreme risk and adversity in terms of price mobility, which is not exactly a good thing to do.

So even though the price movement is large, I would say nibble at small, small profits in the markets and do that multiple times, rather than trying to a drink up the entire water of the well.

In Hindi, there is a saying, 'Samundar ka pura panni pena, kuhe ka pura panni pena', means drinking the entire water of the well yourself. It's not advisable in this market, with this kind of volatility prevalent at the current times in the market.

Keep nibbling and the nibbles will itself account to a substantial amount if done well and sagaciously. Feel free to disagree in the comments section. Good, bad or ugly, whatever are your views, I welcome them with open arms. Keep them coming.

I bid goodbye to you in this video not before reminding you to click like on this video if you agreed with what you saw. Subscribe to my YouTube channel if you haven't already done so. Click on the bell icon to receive instant alerts about fresh videos being put up out here and refer my video to your family and friends and help fellow like-minded investors and traders benefit from these videos.

Thank you for your patience. Have a very, very profitable day. Till we meet again in my next video, this is Vijay Bhambwani signing off for now. Do take very good care of your trades and investments. Have a profitable day ahead. Bye.