Tuesday, November 30, 2010

Behaviour of Indian Equity Markets

In the recent time Indian equity market are showing four distinct behaviour clusters. These zones are independent in the sense that their behavior does not seem to correlate with news or other stimuli. If that were the case, it would not be worth commenting on. However, this behaviour  is important to note this as it affects the trading strategy.

The trading happens in four peculiar disjoint zones. 

First zone represents the newly started pre-market operations. The price movements in this segment are very difficult to predict and the pre-market prices do not reflect in any way the likely direction markets may take post open. I avoid using the prices set in this phase totally.

The second zone represents the market open to about mid-day wherein European markets open. However, the timing match with European markets is not exact. The second zone lasts till about 1.30 -2 pm India time. 

Post this till close at 2.30 -3 pm represents the third zone. The performance in this zone is drastically different from performance in the second zone. Note, it is not necessarily opposite, just different. The markets may expand on second zone performance or simply reverse it.

The final zone is the last 30mins to 1 hour of trade. This zone appears occasionally. But can make or break your day trades.