Oops! Another financial jargon!
Don’t worry you’ll understand the jargon even before you start spelling it.
What is Muhurat trading?
Muhurat Trading is the well-known phrase followed by the trading community.
In fact, it is an old ritual followed by the trading community over the years.
‘Muhurat’ is a mere phrase denoting something auspicious.
Therefore ‘Muhurat Trading’ is one-hour trading that is held specifically on the day of Diwali by the stock exchange every year.
It is believed that by trading during this short-specified period, a trader or investor will earn wealth and prosperity the whole year.
This session is predominantly held in the evening (the exact time when laxmi pooja commences) and most of the traders indulge themselves in trading activities during this time.
How did this tradition of Muhurat Trading begin?
The history is traced back to the customs and traditions of the broker community.
Usually, brokers/stockbrokers start their new year from the day of Diwali.
Hence, the new dawn of new settlement accounts for their clients on Diwali during this auspicious time – the Muhurat.
The community performs Chopda Pujan or worship their books of accounts on Diwali.
There were countless beliefs that were associated with Muhurat trading.
The fundamental among all of them was that most Marwari traders/investors sold stocks during the Muhurat since they believed that money should not enter the house on Diwali and Gujarati traders/investors purchased shares during this period.
While there is no data to back this, and obviously in current times, this doesn’t hold true.
Today, Muhurat trading has paved its way and has gained importance of a symbolic gesture than a cultural one.
This is because people believe the period divinely auspicious.
Most Hindu investors do Lakshmi Pujan (pray to Goddess Lakshmi) and then purchase shares of strong companies that would generate good returns in the long-run.
Things one should know about Muhurat Trading
- Best time for beginner traders/investors
Muhurat trade is also known as the most auspicious time for a beginner/newbie trader/naïve trader/ retail trader/investor to do his/her first trade.
Logically, this is the period where one can get the most of rational and optimistic sentiments across the stock market.
If you compare this short period with the one of any random trading days there is a higher probability of gaining because of the overflowing bullish sentiments.
Also, one gets an understanding of the market and can experiment with a small investment.
This baby step helps in boosting confidence.
Once a thorough understanding is gained, traders can invest by picking up the best stocks.
- Gains without pains for Intraday traders
Just as stated before many traders believe that Muhurat trading brings them a lot of profit as index would have a bullish trend.
Hence, many buy the stocks and sell them on the same day.
However, one has to be super cautious while doing so, as there are Muhurat trading sessions where the indexes have accounted losses.
Also, there are times when there is a sudden bearish trap or bearish bubble or bullish bubble or at least a small correction can be expected the day following the festival.
But what exactly happens in Muhurat Trading?
- On Diwali, both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) have their trading secession divided into the following parts:
- Block Deal Session – where two parties agree to buy/sell a security at a fixed price and inform the stock exchange about it
- Pre-Open Session – where the stock exchange determines the equilibrium price (usually around eight minutes)
- Normal Market Session – the one-hour session where most trading takes place
- Call Auction Session – where illiquid securities are traded. Security is termed illiquid if it satisfies the criteria set by the exchange.
- Closing Session – where traders/investors can place a market order at the closing price
Muhurat Trading Timings 2020
Here is a quick look at the Muhurat Trading time, 2020 for both BSE and NSE:
|Muhurat Trading Session||Capital Market|
|Block Deal Session||17:45 – 18:00 hours|
|Pre-Open Market||18:00 – 18:08 hours|
|Normal Market||18:15 – 19:15 hours|
|Call Auction Session||18:20 – 19:05 hours|
|Closing Session||19:25 – 19:35 hours|
Who can benefit from this type of trading?
During Muhurat trading Session trading activity volumes springs up than the expected volumes.
Given that festive moods and sprits peak accompanied with optimistic environment of the economy and among the people everywhere there is no doubt and hesitance for the market is be on the bullish temperament.
Hence, it is a good time for both traders and investors, new and experienced, to benefit from the Muhurat trading session.
For people who believe in astrology (auspicious planetary alignments), Diwali is celebrated for bringing in wealth and prosperity.
Hence, if you have never invested in stocks, then Diwali can be one of the best days to begin with.
Have an eagle eye sight while picking fundamentally sound companies and purchase some stocks with a long-term purview and which is in tandem with your investment plan.
However, if you are planning to enter the stock trading domain, then it might be prudent to observe the markets during Muhurat Trading and probably do some paper trading or seek professional assistance to get the hang of things.
Markets are known to be volatile since the trading window is open for only one hour.
Which could be a reason to worry for you.
And hence, being cautious as a new trader is recommended.
Experienced intraday traders are seen to benefit from this session since most investors/traders will buy and/or sell stocks as a gesture to acknowledge the auspiciousness of the day.
The focus might not be on profitability as much as it might be on the gesture.
Hence, seasoned day traders can make good profits by taking positions only after careful consideration.
The previous year has been bad for the economy since the pandemic impacted businesses and livelihoods alike.
While many experts are hoping for a good Muhurat trading Session in 2021, you will do well if you keep the zeal in your heart and make trading decisions with your head.
Muhurat trading Tips
- Muhurat trading can look fancy because of the idea of a precepted bullish notion. But that’s not a promising scenario during every muhurat trading secession.
- And hence here are some aspects that one must keep in mind before indulging into trading activity on Diwali day trading time.
- Traders must not forget about the technical aspect.
- One must so their homework before entering into the trade.
- Resistance and support levels shouldn’t be neglected.
- During Muhurat trading Sessions, it has been observed that the markets can be volatile with no specific direction.
- Hence, as a day trader, keeping the resistance and support levels at the center of your trading decisions will help you make better trading decisions.
It really helps!
- Investors must ensure that they stick with the fundamentals of a company before investing in its stock for the long-term.
- The Muhurat trading session is usually filled with a lot of excitement, sentimants and rumors can spread fast. Stick with the basics and invest in sync with your investment plan and risk tolerance.
- If you plan to profit from the volatility, then ensure that you choose stocks with good trading volumes since the trading window is only for one hour.
- Investing during this period does not guarantee returns.
- Even if the stock performs well on Diwali, its performance in the future will depend on its fundamentals and macroeconomic factors.