How to trade smartly: A 5-point guide for intraday traders to make money on volatile Budget day

Budget Day is one of the most volatile trading sessions of the year. The stock market reacts sharply to the announcements made by the Finance Minister, with the benchmark Nifty fluctuating in a wide range. History shows that, in 12 out of the last 14 budgets, the index has moved within a 2-3% range.

For intraday traders, this volatility presents both opportunities and risks. Here’s a five-point guide, backed by expert insights, on how traders can approach the market on Budget Day.

1) Understanding the volatility

Sujit Modi, CIO of Share.Market says that a common trend around Budget Day is the rise in Implied Volatility (IV) of options in the days leading up to the event, followed by a sharp decline once the announcements are made.

This means that traders who rely on directional trades (betting on price movement) may find it challenging, whereas strategies that take advantage of changes in volatility (vega-based trades) may be more profitable.

Backtesting of different strategies has shown that Short Iron Fly and Short Iron Condor strategies have performed well on Budget Days, delivering consistent profits in 13 out of the last 14 instances. However, 2021 was an exception, where Nifty moved 4.74%, leading to higher-than-usual losses.

2) Key support and resistance levels

Markets often swing wildly between key technical levels on Budget Day. According to Riyank Arora, Technical Analyst at Mehta Equities, traders should watch these levels closely: Nifty 50: Immediate support is at 23,350, while the major support level is at 23,150. Resistance is at 23,750, with a strong hurdle at 24,000.

"We can see some sideways movement and after the budget speech there can be some volatility depending on how the budget is. The level to watch out for tomorrow is 23800-24000 on the higher side and on the lower side 23400-23250 will play as crucial support levels," said Viral Chheda, Sr Analyst, SSJ Finance & Securities.

Bank Nifty: Support stands at 49,200, with a major cushion at 48,500. Resistance lies at 49,700, with 50,000 as a key level to watch. A breakout above resistance could indicate a bullish trend, while a breakdown below support could lead to a sharp fall.

3) Proper risk management is key

Since Budget Day is highly volatile, risk management is one of the key factors to stay on course. Kushal Gandhi, Technical Analyst at StoxBox advises traders to avoid naked positions (trades without hedging) as sharp swings can wipe out capital.

"Use wider stop-loss levels to accommodate sudden price fluctuations. Monitor India VIX (Volatility Index) as it spikes significantly before and during the Budget announcement. Traders should also stick to highly liquid stocks and indices like Nifty 50 and Bank Nifty to ensure better price discovery," Gandhi said.

4) Where to look for opportunities?

Historically, certain sectors have reacted positively to Budget announcements. Chheda says traders should focus on PSU, Defence and Railway stocks as past trends show that these sectors benefited more than others.

Over the last 14 Budgets, FMCG stocks have shown positive intraday moves in 11 instances, while IT and Media stocks have delivered strong returns the day after the Budget.

5) Choosing the right trading strategy

For traders looking to capitalize on the Budget Day movement, Vishnu Kant Upadhyay from Master Capital Services suggests that if Nifty breaks above 23,900, traders can take a bullish position using a Bull Call Spread.

If Nifty falls below 23,000, a Bear Put Spread can be a safer option. "Stick to confirmation-based trades rather than pre-emptive bets," Upadhyay said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)