Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

Rising Risk on Volatility and Election Event Risk on Longs: A Short-Term Overview

1 min read

As we approach a significant electoral event, market participants are increasingly anxious about the implications for Nifty Futures. This nervousness is vividly reflected in the soaring India VIX levels and the heightened volatility in price action. In this blog post, we’ll look into the recent market behavior, the risks associated with holding long positions in the short term, and strategic considerations to navigate this volatile environment.

Market Context and Recent Developments

Volatility Surge: The India VIX Index, often referred to as the market’s “fear gauge,” has surged to 21.835, marking a significant 6.38% intraday increase. This sharp rise from early May indicates growing market uncertainty as we inch closer to the election results scheduled for June 4, 2024. Historically, such spikes in VIX correlate with increased volatility in the underlying market, and we are witnessing that pattern unfold now.

Price Action: Nifty Futures have been trading at 22,620, displaying notable fluctuations in recent sessions. The chart shows a robust medium-term bullish trend, characterized by higher highs and higher lows, suggesting that the broader market sentiment remains positive. However, the short-term picture is less clear, with the potential for significant swings as traders react to election-related news.

Immediate Resistance Zone

  • Resistance Zone: 22,640 to 22,720

These levels are critical in understanding potential price movements. The resistance zone has proven to be a challenging barrier, while the support levels are key areas where buying interest could emerge, offering potential entry points for long positions.

Short-Term Risks for Long Positions

The Market Profile for Nifty Futures highlights a resistance zone at 22,640-22,720, suggesting potential selling pressure. Target levels at 22,500 and 22,400 may serve as short-term trade destinations. The current Profile shows increased volatility, driven by election speculation and rising India VIX levels. Back-to-back poor lows indicate a risk of correction due to rising long positions. Traders should be cautious with longs and consider hedging strategies. Monitoring key levels and using tight stop-losses is crucial in this environment.

Election Volatility: The primary driver of current market volatility is the upcoming election. The results are highly anticipated, and any unexpected outcomes could lead to swift and dramatic market reactions. Traders and investors should brace for potential price whipsaws and increased trading volume around key news releases.

Increased Market Anxiety: Speculation and uncertainty often lead to erratic market behavior. The recent rise in India VIX highlights the market’s nervousness. High volatility environments can result in larger-than-usual price moves, posing a risk to unhedged long positions.

Volatility Clustering Effect: Periods of high volatility tend to be followed by continued volatility. This clustering effect means that the current turbulent market conditions are likely to persist until after the election results are digested by the market.

Monitoring Key Levels:

  • Resistance Zone (22,640 – 22,720): Watch this area for signs of selling pressure. If the market struggles to break above this zone, it might be an indication to take profits or avoid new long positions.

The current market environment is characterized by rising volatility and heightened risk due to the upcoming election. While the medium-term trend for Nifty Futures remains bullish, the short-term outlook is fraught with uncertainty. Traders should employ stringent risk management practices, consider hedging strategies, and closely monitor key support and resistance levels to navigate this period effectively.

Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

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