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Pendulum Trading Strategy in Stock Market and Earn Through It

By: Nisha Gupta0 comments

Benjamin Graham, A British born American investor once quoted that 95% people in stock market (NSE/ BSE ) used to lost their money and only 5% of the market make money through stock market. Recently founder of Zerodha said that he has seen about 99% people losing their money and only 1% make the money through stock market. The major reason may be that during lockdown and afterwards many people have been attracted to the market as ease of trading.

Why only 1 % make money and what about others. This question often astounds me why only 1% people and who are they. Either they are lucky enough to have positive trade or they know everything beforehand.  If first one is the answer then I have to wait for my luck and if the second one then I don’t have any insider news to bring me good luck.

So how can I make money. Trader and investor has to make informed decision with strong strategy in hand as per market condition and trade with discipline.

If you are a regular trader then u must have observed one usual pattern in stock market. Wherein indexes moves up and down regularly/ frequently in one session or multiple session however remain in range without any big move and it seems like it is working in a pendulum pattern (i.e coming back to same/nearby position as started) and if we talk about option both side losses on premium front along with time value.

First we need to understand that It happens because there is no much news in the market for either upward or downward movement as stock market majorly works on sentiment (those 99% people). We can also say that market is indecisive about the future prospects. In such condition we may utilize the strategy of pendulum trading for stock as well as option wherein if index go upwards, we take the position of Put option (buy) and if market goes downwards then we take the position of Calls (Buy). It can also be called contra trade strategy. The skilled traders use this strategy and possess very high risk of sideways moves, however skilled traders trade with strict stop loss and trade in stock market with discipline.

The biggest benefit of this strategy is that premium of option gets reduced substantially of opposite side due to lower probability of happening and we can buy the same at very low pricing however it is also necessary that we trail our profits as well and should book it on regular intervals as nobody can predict the market moves and top/ bottom of market.

We can apply this strategy in Stock Option trading , Index option trading in stock market.

We need to avoid this strategy when market is very bullish or very bearish as per sentiments which can lead to extreme one way move. Contact Munafawala for any further assistance on market views free of cost.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment/ Trading objectives shall be achieved. Munafawala do not guarantee any assured returns on any investments/ Trading. Past performance of securities/instruments is not indicative of their future performance

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