Making Profit in Range Bound Markets

What is a Range Bound Market ?

What is a Range Bound Market?

• Markets often move in a range when there is a lack of news flows and triggers which may take markets either ways

• Markets are range bound during the consolidation phase of a bull or a bear market

Profiting in Range Bound Markets

Profiting in Range bound Markets

• Picking up fundamentally strong companies– For long term investing, picking up fundamentally strong companies is

the best bet– They are more likely to perform in the longer run– It falls less when the markets fall and rises faster when the market

seems positive

Profiting in Range bound Markets

• Looking at the dividend yield– Capital appreciation & Dividend yield are interdependent– A stock with a good dividend yield is a best bet in falling markets– Dividend payout is not related to the market movement and is a good

source of income

• Portfolio Churning– Good portfolio churning give high returns in range bound markets– This strategy may look simple but is the most difficult to implement

and requires strong technical analysis skills– Always keep in mind the high costs associated with high portfolio

churning

Profiting in Range bound Markets

• Constant weighted asset allocation– This is a simple strategy where the weight to each asset class like

equity, debt, gold etc. is predefined– As the weights change because of market movement, the portfolio is

realigned by selling in one asset class which has gained and buying into the asset class which has fallen

– The disadvantage in this method is the mechanical approach

Profiting in Range bound Markets

• Hedging at the upper band– Investors may hedge their portfolios at higher band of the markets by

buying put options or selling call options– This will ensure neutral position even if the markets come down as the

loss on portfolio investment will be compensated by the gain on the derivative position

Profiting in Range bound Markets

Do I need to be cautious?

Words of Caution

• These strategies require a high degree of study and focus

• Playing around these strategies may be rewarding but the risk involved is also high

• Such strategies should be adopted only in consultation with a competent financial advisor

Remember: Making money in a bull or a bear market is an easier task as compared to a range bound market

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