Falling Stock Market is Good Time For Investing 2022

We can see from May 2022 Indian stock marketing falling down. This is a good time when we can invest money.

• Our Index Nifty made an all-time high of 18600 on 19th October 2021.
• Today, when I am writing this post on 07th May 2022, Nifty is currently trading at the 16400 level, ie. approx. 2,200 points down in 6 months.
• However, the beauty of the stock market is that one can make money even when the market falls. In fact, the falls are quick with Big moves & hence money is made in no time.
• There is a well known saying that >> The bull walks up the stairs and the bear jumps out the window” means that a market drops ("bear") faster than it rises ("bull")

So, back to the question > How can someone make money in a Falling Market?

• Making money in falling markets is conceptually as simple as selling your shares at a higher price and hoping for the market to fall. When you feel the market has fallen enough, you can simply buy back your shares for a lower price. The difference between your selling price and buying price becomes your profit. Now, you may wonder what if I do not already have shares to sell? Well, in that case, you can make use of Futures & Options
• Futures: When you are expecting the price of a security to fall, all you need to do in the future is take a SHORT position. What is a SHORT position? If you feel, that the price of a stock will fall from 100 to 90, you take a short position in the stock without actually holding the stock. When the target price of 90 is achieved, you simply buy that stock back.
• In Futures terminology, we have something called a lot. Each Futures contract has a lot of sizes. The Nifty Future, for example, has a lot size of 50: meaning each Nifty Future contract represents 50 Nifty underlying.
• Similarly, each Equity Future has a lot size. Reliance Futures, for example, has a lot size of 250: so each Reliance Future is equivalent to 250 Reliance shares.
• So how do you exactly make money > if the price of the stock is quoted at Rs? 100, you will be short approximately 5000 shares. When the price falls by 10 rupees, you make 10 x 5000 = 50,000 rupees. This concept of buying/selling more than the money you have is called Leverage.
• Leverage is a double-edged sword. It multiplies profits manifold but also multiplies losses.
• If futures in a stock has a leverage of 5, it means that profits would be five times tof hat equity profits. If the equity returns a profit of 20%, the futures offer a return of 100% ( Futures profit percentage = Equity profit percentage*Leverage). This is possible because only a fraction of the price is paid to buy futures (margin).
• But losses would be equally magnified too. A 20% loss in equity would cause a 100% loss in futures having a leverage of five.
• Let me share my today's trade-in Nifty Futures, where I Shorted Nifty Futures (Lot size: 50) at a price level of 16915.70 & covered the same at 16400 the very next day. Gain of 515.70 points, which means the profit is 515.70 * 50 = 25,850/-
• Margin amount required to execute this trade: Approx.. 90,000/- (in Upstox)
• So basically, by providing this margin amount to your broker, you can control a contract worth Rs. 8,45,785/-

• Entry & Exit point with SL on Nifty Chart (Daily Timeframe) >>

• Again, if one has knowledge of Options, he/she can simply Buy the PUT option by paying a fractional premium amount compared to that of Futures.

So this is how you can make money when the market falls.

I hope your all concerns are clear, if you have any further queries then please feel free to comment in the comment section.