The Festival of Lights – Diwali is an auspicious time according to the Hindu calendar. It symbolizes the victory of light over darkness, knowledge over ignorance, and good over evil.
Like any religious festival, there is a plethora of beliefs, customs, and traditions that surround Diwali. One such tradition is Muhurat trading. Today, we will discuss this tradition and talk about everything that you need to know about it.
What is Muhurat Trading?
Before we answer the question, what is Muhurat trading, let’s look at the term Muhurat. The word ‘Muhurat’ means an auspicious time. In Hindu customs, Muhurat is a time when planets are aligned favorably to ensure positive results.
Muhurat Trading is a common ritual followed by the traders in India. This is a one-hour time that is considered auspicious on the day of Diwali for investing in shares. The stock exchange specifies the time of Muhurat trading every year.
According to beliefs, people trading during this one hour have a better chance of earning wealth and gaining prosperity throughout the year. Typically, this period is during the evening of Diwali and most people prefer buying stocks as a token of Goddess Lakshmi. This is unique to the Indian stock markets only.
History of Muhurat Trading
When did Muhurat Trading start?
Traditionally, stockbrokers started their new year from the day of Diwali. Hence, they would open new settlement accounts for their clients on Diwali during the auspicious time – the Muhurat.
The broking community would also perform Chopda Pujan or worship their books of accounts on Diwali. There were many beliefs that were associated with Muhurat trading.
The primary among them was that most Marwari traders/investors sold stocks during the Muhurat since they believed that money should not enter the house on Diwali and Gujarati traders/investors purchased shares during this period. While there is no data to back this, in current times, this doesn’t hold.
Today, Muhurat trading has become more of a symbolic gesture than a cultural one because people believe the period to be auspicious. Most Hindu investors do Lakshmi Pujan (pray to Goddess Lakshmi) and then purchase shares of strong companies that can generate good returns in the long-run.
What happens in Muhurat Trading?
On Diwali, both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) permit trading for a limited time. Typically, the session is divided into the following parts:
- Block Deal Session – where two parties agree to buy/sell a security at a fixed price and inform the stock exchange about it
- Pre-Open Session – where the stock exchange determines the equilibrium price (usually around eight minutes)
- Normal Market Session – the one-hour session where most trading takes place
- Call Auction Session – where illiquid securities are traded. Security is termed illiquid if it satisfies the criteria set by the exchange.
- Closing Session – where traders/investors can place a market order at the closing price
Muhurat Trading Timings 2020
Here is a quick look at the Muhurat Trading time, 2020 for both BSE and NSE:
|Muhurat Trading Session||Capital Market|
|Block Deal Session||17:45 – 18:00 hours|
|Pre-Open Market||18:00 – 18:08 hours|
|Normal Market||18:15 – 19:15 hours|
|Call Auction Session||18:20 – 19:05 hours|
|Closing Session||19:25 – 19:35 hours|
Who Can Benefit from Muhurat Trading?
The Muhurat trading Session is a good time to buy or sell stocks since the trading volumes are high. Also, usually, the market is bullish since the festive spirit focused on prosperity and wealth drives people to be optimistic about the economy and the stock markets. Hence, it is a good time for both investors and traders, experienced and new, to benefit from the Muhurat trading session.
For people who believe in auspicious planetary alignments, Diwali is celebrated for bringing in wealth and prosperity. Hence, if you have never invested in stocks, then Diwali can be a good day to begin.
Look for high-quality companies and purchase some stocks with a long-term horizon and in sync with your investment plan. However, if you are planning to enter the stock trading domain, then it might be prudent to observe the markets during Muhurat Trading and probably do some paper trading to get the hang of things. Markets are known to be volatile since the trading window is open for only one hour. Hence, being watchful as a new trader is recommended.
Experienced day traders can benefit from this session since most investors/traders will buy and/or sell stocks as a gesture to acknowledge the auspiciousness of the day.
The focus might not be on profitability as much as it might be on the gesture. Hence, seasoned day traders can make good profits by taking positions after careful consideration. This year has been bad for the economy since the pandemic impacted businesses and livelihoods alike. While many experts are hoping for a good Muhurat trading Session in 2020, you will do well to keep the fervor in your heart and make trading decisions with your head.
Things to keep in Mind Before Indulging in Muhurat Trading
Here are some aspects that you must keep in mind before you start buying or selling stocks during the Diwali day trading time (Muhurat Trading).
- Most traders and investors consider this period to be auspicious to make investments.
- All open positions at the end of the trading session will result in settlement obligations.
- While the Muhurat trading session will be held on Saturday (November 14, 2020), the markets will be closed on Sunday and Monday (November 16, 2020, on account of Diwali Balipratipada)
- Traders must keep a close eye on the resistance and support levels. During Muhurat trading Sessions, it has been observed that the markets can be volatile with no specific direction. Hence, as a day trader, keeping the resistance and support levels at the center of your trading decisions will help you make better trading decisions.
- Investors must ensure that they stick with the fundamentals of a company before investing in its stock for the long-term. The Muhurat trading session is usually filled with a lot of excitement and rumors can spread fast. Stick with the basics and invest in sync with your investment plan and risk tolerance.
- If you plan to profit from the volatility, then ensure that you choose stocks with good trading volumes since the trading window is only for one hour.
- Investing during this period does not guarantee returns. Even if the stock performs well on Diwali, its performance in the future will depend on its fundamentals and macroeconomic factors. Invest smartly.
Happy investing and a very happy Diwali!
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