As a long-term investor you always lose money if stock market goes down and this is a fact and true. You invest in a good stock expecting a good return, but when there is a slowdown your original portfolio value decreases. While the slowdown remains for a longer period than that in a positive market, Investors think that slowdown provides opportunity to pick up good stock at lesser price. Hence the investor keeps on buying to average and lock most of the working capital.
But the real problem is that nobody knows the bottom not even a Technical analyst. An investor most of the time waits for 2 years to find out that only few stocks provides expected return or able to come back at original price.
So what are the ways to make a fortune when there is a slow down?
- When Market crashes – Short the stock
In the day trading, a trader can sell a stock which he doesn’t hold in his portfolio which means you sell in the morning and buy before the day ends. This is known as short selling of stock. To do short selling in a day trading the trader gets margins to a level of 10X of the capital. Negative market usually last longer than positive market. So at these times go for short.
- Identify Sector to Short
Generally a trader can find out which sector is going red by a simple technical indicator and heat maps. Once the sector is identified, then it is easy to find out which stocks are pulling it down. A trader has an advantage to sell the stocks until 15 minutes before closing of the market and hence they can take the advantage till positive news comes and turn the market.
- Worth Trading Index
Use derivatives. The stocks which are listed into derivative sector can be sold by bringing the margin money. These derivative stocks can be held till a certain date in future. Derivatives are actually a future contract of buying and selling of a stock. Even Nifty index and bank nifty index are tradable in a derivative sector. Derivative stocks are traded in a lot and a lot size is 75. So, when nifty goes down 100 points an income of INR 7500 is made. On an average day nifty moves at least by 25 points.
- Cover order for Higher return
In a day trading, a trader can enter into multiple types of order to get maximum return. One such type is called a CO (Cover order). With cover order, a trader can sell higher number of lots than in a normal order. Cover order need to be closed on the same day. Once a trader follows simple indicator, he can find out the trend of the day, the entry price, the stoploss price and the target price. Some of the indicators like RSI, ADX, Parabolic Sar, Bollinger Band provides great insight of the market.
The Golden Rule
The day the market opens as negative, find out the sector where most of the stocks are down. Follow the trend. Go short or sell stocks on those days. Use cover order to trade in Nifty Index or Bank nifty Index.
The Market runs on three sessions.
- 9:15AM to 10AM – morning session
- 12PM to 1:30PM – second session
- 2PM to 3:30PM – third session
If market is negative and after 2 PM it breaks the lowest price of the day, traders can always go short. Third session trend is always one side trend.
About The Author
Founder Director at GenYAnalytica Solutions Private Limited.
A Data Science Management consultant with over 23 years of experience in finance domain. He builds and implements Artificial Intelligent Tools in the areas of Stock Trading, Commodities, Forex, etc., He also provides training on
- Technical Analysis of the stock market
- Trading and Investment using Technical Indicator and Machine learning.
- Quantitative Analytics using statistical model
- Portfolio Management
- Risk Management and Risk Optimization
- Algorithmic Trading and Trading System building
- Hedge fund management