SWIM or SINK in this choppy market

Hello Everyone,

In the last article I had specifically mentioned the kind of extreme volatility we are likely to see, and that is what we have been observing in the market. Intraday the movement on Nifty is close to 100 points, which is a staggering number for a benchmark index.

You pick a stock and it is down close to 10-30% from their October highs. Everyone who could not enter the markets at 6300 levels and waited patiently for 5800 -5850 levels are still not ready to buy at 5700 levels on Nifty.

That is how the markets are… It will make you buy at extreme highs and exit at market lows.

In such times of market sliding, we talk of risk management and stuff, i think the best risk management comes by buying the optimum quantity at any point of time, based on the volatility and beta of the stock, and your risk appetite.

If the stock is highly volatile and has a high beta(beta signifies the correlation with the benchmark index,such as Nifty), then ideally the quantity traded in such stocks should ideally be less. This will optimise your portfolio allocation and avoid huge MTM swings as seen in high beta stocks(which generally have a tendency to react more when the index falls).

My experience in the market tells that it is just a rare quality to pick the perfect bottoms/tops, but what is more important is to understand whether we are close to one. Human/Investor pschology plays the perfect indicator in such critical points.

When the going goes tough, it is always much better to step out of the arena, for some time. Become the audience, enjoy the show and enter on the side where you think the real strength lies. Wait for panic signals to enter the long side of the market.

, will help you SWIM through these volatile times and avoid you from Sinking.

Happy Trading..!

– Kunal Bothra