A Relief really – Probably

There is some sense that today’s low at 4950 may have been at least a short term low. The Nifty bouned from these lows to close significanlty higher. While intraday volatility remained high, the close did suggest that 4950 should hold for now. Ideally, prices should come down to test the 4950 level, and the test should be successful. But, in the absence of this test, we should assume today’s low to hold in the short term, given the intra day price action.

What should traders do now?
Buying options is not a good idea given large implied volatility increases. With 4950 as a stop, it is possible to sell put options. This gives a bullish bias. You must then have a profit target which could be abut 50% of the selling price of the put. A second method is to buy futures. Your stops should be closer than 4950, maybe the inraday low.

This is written at 7.47 PM. It is possible that the scenario may change overnight, depending on the U.S. markets.

Volatile Markets are not good places to trade

I have been suggesting that volatile markets are not good locations to trade. Trading is done when probability is in our favor. In volatile markets, news, rumors and panic prevail. These emotions are not part of normal price movements, therefore technical analysis does not capture them.

My point is proven by the random nature of Nifty movements. On Friday, the Nifty opened lower, moved a 100 points down, then recovered 100 points back. It opened lower again on Monday, moved down, moved up 150 points then down 100 points. Chances are similar drama will be enacted today (tuesday). So, I stay away.

It is easier to suggest that markets should find a short term low in this week. This can be identified by a reduction in volatility and watching the charts.

Have Fun.