Festive optimism meets strategic opportunity: Muhurat trading 2024 tactics by market experts

The festive season heralds the arrival of Muhurat trading, a one-hour session uniquely grounded in tradition and positive sentiment. This brief period, observed to mark the start of a new Samvat year, sees lower trading volumes and subdued volatility, making it ideal for strategic trading. 

Conducted every year on Diwali, Muhurat trading is an annual ritual on the Indian stock exchanges, where investors believe that trading during this "auspicious hour" invites good fortune. The practice is steeped in tradition, with many traders using the session to set a positive tone for the upcoming financial year. Beyond its economic significance, it represents the optimism with which new ventures are undertaken.

This year, both BSE and NSE will hold the Muhurat trading session on Friday, November 1, from 6:00 pm to 7:00 pm. While markets are closed during the day, this evening session provides an opportunity for token investments, keeping the spirit of Diwali alive in the market.

"When it comes to Muhurat trading, it’s more about tradition than profit-driven strategies. Investors often buy a small amount of shares as a symbolic gesture rather than diving into extensive trading. This tradition-focused approach emphasises sentiment over immediate gains," says Trivesh D, COO at Tradejini.

During Muhurat trading, markets generally remain stable, but astute investors can still leverage strategic moves. While some prefer aggressive action, for many, however, the emphasis is on cautious participation, particularly given the ongoing market correction phase.

"Muhurat Trading goes beyond a regular trading session—it’s an optimistic ritual. The one-hour session is less volatile and tends to draw lower volumes, making it perfect for tactical positioning rather than high-risk moves. Savvy investors might explore strategies like the butterfly option for this session. Given the market’s corrective phase, it’s wise to adopt smart, rather than aggressive, approaches," notes Puneet Sharma, CEO and Fund Manager at Whitespace Alpha.

Nifty & Bank Nifty Outlook on Muhurat Trading by Share.Market

The markets have been on a downward trend throughout October, with the Nifty 50 declining almost 8 per cent from its peak of 26,216.

On Nifty’s chart, a head and shoulders pattern is evident, with a drop following its breach below the support level at 24,777. This downward trajectory is further confirmed by the 50-day moving average, which has turned negative.

Nifty currently trades at 24,309, with immediate support around the 24,000 level. Should it breach this support, further declines could be expected. However, if Nifty rebounds, it may stabilise within a consolidated range.

Meanwhile, Bank Nifty is showing encouraging signs of positive momentum. It is presently testing a resistance level of 51,756. A bullish reversal pattern is visible on the chart, indicating a potential upward trend. Additionally, a crossover between the 10-day and 21-day moving averages is occurring, while the Nifty holds its 50-day moving average.

Technical Strategy for Muhurat Trading Session

Puneet Sharma’s Butterfly Strategy Recommendation

Puneet Sharma advises that the butterfly options strategy is an ideal choice for Muhurat trading. Designed for limited risk, this approach offers the potential for stable returns without exposure to significant market volatility. The structure is as follows:

Buy one call option at a lower strike.

Sell two call options at the middle strike.

Buy one call option at a higher strike.

This setup profits if the market remains stable, a scenario typical during the subdued Muhurat trading session. By structuring the strategy within a range, investors limit downside risk.

Why Choose the Butterfly Strategy?

Low Volatility, High Precision: Muhurat trading is traditionally stable, making the butterfly strategy a natural fit. It’s like planning for an event where predictability is key—ideal when market movement is expected to stay within a range.

Defined Risk and Reward: The butterfly spread caps risk, providing a predictable reward if the market behaves as expected.

Time Decay Advantage: Given the short session duration, theta decay (or time decay) benefits investors as options lose value swiftly, enhancing potential gains with minimal market movement.

Big Picture: During a corrective market phase, controlled risk is crucial. The butterfly strategy for Muhurat trading allows participants to engage thoughtfully, focusing on calculated moves rather than aiming for aggressive returns. According to Whitespace Alpha, the strategy embodies the kind of balanced approach they advocate for their clients.

Meanwhile, Ajit Mishra, SVP of Research at Religare Broking, advises aligning trading strategies with current market conditions, given the ongoing correction. For this Muhurat session, a close above 24,500 on the Nifty may indicate potential recovery, with targets between 24,750 and 24,850. However, if Nifty breaks below 24,000, a test of the 200-day exponential moving average could follow, he said.

For long-term investors, Muhurat trading is an opportunity to gradually accumulate quality stocks. In its Diwali special report, Religare Broking recommended stocks such as SBI, ITC, Berger Paints, Titan, and Jyothy Labs for steady investment growth.

As investors prepare for the Muhurat trading session this Diwali, tradition and sentiment play as significant a role as strategic positioning. With markets in a corrective phase, adopting controlled strategies like the butterfly spread could offer returns with limited risk, aligning well with the generally low volatility of this symbolic session.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.