The Indian stock market has seen significant fluctuations this year, with the Sensex experiencing a 7% swing and the Nifty 50 moving by over 8% in just the first six months of 2024. Such market volatility may be intimidating, especially if you are new to equity trading. 

However, there are many expert strategies that you could use for successful equity trading. Let’s find out what those are.

What is Market Volatility

Market volatility is the rapid and significant price movements in the stock market. 

Various factors contribute to market volatility, such as changes in RBI interest rates, political events like the Lok Sabha elections, or global occurrences like the Russia-Ukraine war. There could also be significant market volatility when big investors like Foreign Portfolio Investors and Domestic Institutional Investors enter or exit the market. Market volatility may seem risky, but you can view it as an opportunity to enhance your portfolio. 

Strategies to Tackle Market Volatility

Let’s take a look at some of the top strategies that you can adopt to deal with market volatility:

Have a Trading Plan

A well-thought-out trading plan is crucial. Start by noting your investment goals and risk tolerance. Set entry and exit price points for your trades, planning in advance at what price you will buy or sell a stock. Use tools like technical and fundamental analysis while setting up your trading plan.

1. Technical Analysis is about analysing price charts and patterns to identify trends. This allows you to take calculated buy/sell decisions.

2. Fundamental Analysis involves evaluating financial statements and earnings reports to determine a stock's value. You can use this to evaluate a company, sector or even an investment theme.

Adopt Risk Management

Risk management protects your money and ensures investment growth. A widely used risk-management tool is a stop-loss order, which allows you to set a safety limit on your investment. 

For example, if you bought Reliance Industries shares at ?2,500 each, setting a stop-loss at ?2,300 means your shares will automatically sell if the price drops to ?2,300, limiting your losses.

Diversify Your Portfolio

Diversification is key in volatile markets. Spread your money across different stocks to balance the impact of poor performance from any single stock. For instance, you can include stocks of companies belonging to various sectors. This way, if one sector is volatile, it can be offset by stability or gains in others.

Also Read - Best Share Market Tips For Beginners

Know About Equity Trading in Volatile Markets

Within the stock markets, the Futures and Options (F&O) segment can be particularly volatile. This can result in significant losses for retail investors. 

SEBI (Securities and Exchange Board of India) has appointed a working committee on Futures and Options with the intent of limiting retail participation in this segment. This committee has recommended increasing the minimum lot size of derivative contracts from the current Rs 5 lakh to Rs 20 lakh-Rs 30 lakh. Lot size refers to the number of units of the underlying asset in a single derivative contract. This recommendation, if accepted by the regulator, means that you will need more capital to trade in F&O. 

Conclusion

If you have a well-thought-out plan and strategy in place, you can easily navigate volatile markets. Always stay informed with market news and work towards diversifying your portfolio to handle market ups and downs effectively. You can use resources from Sharekhan Knowledge Center to enhance your market understanding and achieve success in equity trading.