What happens in Muhurat trading
This special trading session is divided into several parts to facilitate different types of transactions and ensure a smooth trading experience for investors and traders. The key components of Muhurat trading include:
- Block deal session: During this part of the session, two parties agree to buy or sell a security at a fixed price, and they inform the stock exchange about this transaction. This segment allows for the execution of large transactions at a predetermined price.
- Pre-open session: The pre-open session is a crucial phase that occurs before the official Muhurat trading session begins. In this phase, the stock exchange determines the equilibrium price, which is essentially the opening price for the stocks. This process usually takes around eight minutes.
- Normal market session: The core of Muhurat trading is the one-hour normal market session. This is where the bulk of trading activity takes place. During this period, traders and investors can buy and sell the securities. It is an opportunity to initiate or close out positions on a positive note.
- Call auction session: The call auction session is designed for trading illiquid securities. An illiquid security is one that does not frequently change hands in the market and may not have a consistent trading volume. To determine which securities are eligible for this session, the exchange sets specific criteria.
- Closing session: The closing session is the final part of Muhurat trading. During this phase, traders and investors can place market orders at the closing price of securities. It allows participants to wrap up their trades at the end of the trading session, aligning their investments with the closing prices for the day.
Who can benefit from Muhurat trading?
Muhurat trading is a special trading session held on Diwali, a major Hindu festival, which is considered an auspicious time to begin new investments. It is believed that investments made during the Muhurat trading session bring good luck all year for investments. Here are the types of investors that can benefit from the Muhurat trading session:
- Long-term investors: Diwali is considered an auspicious time to buy things for the long term, such as a house or a car. However, value investors who invest for the long term use the Muhurat trading session to invest in securities for the long term. They believe the investments made during this session will provide them with high profits over time.
- New investors: Muhurat trading is considered the best market session for a new investor to enter the stock market. As it is a tradition to mostly buy securities during the Muhurat trading session, the prices of securities generally rise during the session. It can provide a good starting point for new investors to start their investment journey with profits.
- Sentiment investors: Muhurat trading often sees increased market activity due to positive sentiment. Traders who are sensitive to market trends and sentiment can use the Muhurat trading session to make profits due to the positive market sentiment. The Muhurat trading sessions witness one of the highest volumes and liquidity all year, and sentiment traders can utilise these factors to make quick profits.
- Intraday traders: Muhurat trading session is best suited for intraday traders who generally make profits by buying and selling stocks in a single trading day. The market sentiment is very positive, and intraday traders can buy stocks just after the Muhurat trading session opens and sell when it is about to close to make quick profits in a matter of one hour.
- Swing traders: Swing traders invest in stocks and hold them for days or weeks to make quick profits. They can identify ideal stocks for the Muhurat trading session and buy them some days or weeks before the session starts. Once the session starts and the stock prices increase, they can sell the shares to make quick profits.
Things to keep in mind before indulging in muhurat trading
Before participating in Muhurat Trading, there are a few key points to consider to make informed decisions.
This trading session, held on 1st November 2024, is regarded as auspicious by many investors. However, it's important to remember that all open positions at the end of the session will require settlement. Traders should carefully monitor support and resistance levels, as the market can exhibit volatility without a clear direction during this time. This makes these levels crucial for making sound decisions.
For long-term investors, sticking to a company’s fundamentals is essential, as the excitement of Muhurat trading can lead to quick-spreading rumours. Aligning investments with your strategy and risk tolerance is crucial. If you're aiming to capitalise on the short-term volatility, it's wise to focus on stocks with strong trading volumes due to the limited one-hour window.
Finally, while Diwali may bring gains, future stock performance depends on fundamental and macroeconomic factors. Hence, approach these trades cautiously, as investing during Muhurat trading does not guarantee returns.
Benefits of Muhurat trading
- Auspicious beginning: Muhurat trading is believed to bring good luck and prosperity. Initiating trades during this session is thought to set a positive tone for the entire year, and many traders consider it an essential part of their annual trading strategy.
- Market volatility:Muhurat trading is known for its volatility. With just one hour for trading and potentially higher volumes, market movements can be more pronounced. This offers opportunities for significant gains but also carries higher risks, demanding well-prepared strategies from traders.
- Symbolic investments: Traders often make token purchases or sales during Muhurat trading, symbolising their commitment to financial growth in the coming year. It is not about the size of the transactions but the symbolic gesture.
- Market sentiment: Muhurat trading often reflects the overall market sentiment, and traders can use it as an indicator for the year ahead. A positive Muhurat trading session can indicate a bullish outlook for the upcoming year.
- Community and tradition: Participating in Muhurat trading allows investors to connect with the broader trading community and embrace the cultural traditions associated with Diwali.
Conclusion
Muhurat trading is a unique and culturally significant event in the Indian stock market. It marks the beginning of the new Hindu year, offering traders and investors an opportunity to make symbolic investments and set the tone for the year ahead. The historical significance and auspicious nature of Muhurat trading make it a highly anticipated event in the Indian financial calendar.
As we approach Muhurat trading 2023 on November 12, traders and investors should prepare to make the most of this special session. By following the announced Muhurat trading time, understanding its historical background, and appreciating the cultural significance, participants can harness the benefits of this auspicious occasion to kickstart a prosperous year of trading and investing.
