If you really want to make money in the stock market, then don’t deal in stocks – Trade the Nifty.
I track almost all Indices for Industry direction / trend but I rarely trade in stocks … I trade the nifty & Bank-nifty.
Years of trading experience has taught me one simple thing … it is far easier to take a directional call on the broader market than individual stocks. If the economy is doing well, the market (nifty) will anyway do well (and vice versa).
Stock movements tend to cyclical, news driven or range-bound for considerable periods of time. Not only do you have to identify the sector correctly, you should also be able to pick the right stock. And then there is this possibility – everything else rallies except what you have bought.
From a fundamental perspective, this means you don’t have to worry about crude oil, interest rates, FII inflows (or outflows), quarterly results, sectors, analysts talk and whatever you can think of.
Some advantages of trading the nifty:
- Index is the barometer of the stock market. If the market does well, Nifty will anyway rise (and vice versa)
- All FIIs and Mutual funds have an exposure on index and index stocks
- All good and bad news is reflected in index (nifty)
- You can play both sides of the market and profit from rallies as well as corrections
- You can daytrade in nifty (not recommended) or carry forward positions till expiry
- Low brokerage/nil demat costs
- Excellent liquidity: The daily turnover of nifty futures & options is 2-3 times that of ALL stocks traded on BSE.
- Low volatility: no wild swings. Because the nifty index is made of 50 stocks, it is always less volatile than the individual stocks.
- Low investment: as nifty is least volatile, NSE margins are lowest. This reduces the investment amount substantially.