HOW NOT TO GET INJURED BY LARGE SWINGS IN MARKET.

In the first week of June 2024, the market witnessed some extreme swings in prices. If Monday recorded all-time highs on the indices, Tuesday’s dips shook the very foundations of people’s faith in the market! Such swings from one extreme to another occur only in the markets and that is what makes it such an interesting place. No need for any drugs here to get a high or drop into a depression! In the following three sessions, the depression of the 4^th June turned swiftly into an exhilarations of new highs once again!

Endless explanations too are being heard on the post mortem. Everyone has their views. In that sense the poll analysts are like market players- everyone seems to be an expert!

The point now is, are you going to keep discussing the past or are you moving on to what to do in the future? When large events occur, there is always a tendency to dwell on them for a while. While political commentators can keep coming with why the BJP won or did not win or the Congress did such and such, market men don’t have that luxury.  Because, the market doesn’t wait. It makes up its mind swiftly and then moves.

We all have this cliché of ‘buy the dips’. But a super dip came on Tuesday the 4^th June. Did anyone buy? Only a select few. Many of those by accident and few by design. The real victory comes to those few who bought by design. The accidental buyer would have been happy to take profits in the days following the poll results debacle. As the prices rose swiftly from the depths, they have managed to recover almost all of what they lost.

The whole trick of the tale is therefore to be in a situation of being able to buy or sell by design. That requires a clear mind, bereft of bias. Professional traders are not ones that carry no bias- they too are human after all. However, they are among those who can swiftly clear the mind of those biases and look at the new reality as it is now. Hence those who saw that the color of the market changed even before the open, hanging on to Monday’s bullish sentiment would have been harmful and hence moved out early enough. Doing that would have still delivered some damage but that would have been small in the context of what followed. Similarly, several stocks stopped falling in the later part of the day and began recovering. Again, being able to spot this change would have led to substantial profits across the next three sessions.

Elections are just an event. Markets remain the same with their reaction to events, either pushing prices lower or higher. This is the same almost everyday as well- the daily news flows are also events. Therefore it is how the market reacts to the event that is more important than the event itself. This is the most important lesson to learn. Unfortunately, many of us remained locked on to the event rather than the market. By the time we are ready to do something, the market would already have moved far ahead from that point. Similarly budgets or RBI meet or Company results etc. are all events. Know them, sure, but pay more attention to the market’s reaction to the events. In that lies your profits.

Easier said than done. Events create emotional waves and these force us into some actions. People take these actions en-masse, creating even greater emotional waves. It requires a great amount of thought clarity and practice of avoidance to join the flow to escape from its impact. So, the solution lies in practicing this. And the secret to that is to have a process. This process could be fundamental or technical. Personally, I find it easier to follow the technical process because I am an active market player. The closer you are to the market action, the more you need to rely on a technical analysis process. Get that, if you haven’t, still. If you are not so involved, then learn to practice the tenets of fundamental analysis then. But, do have one process. Else, days like June 4^th will injure you badly.