Understanding Price Movements of FnO Stocks

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Many traders, especially ones that are not experienced, jump into trades the minute their indicator or screener alerts them.

They do without understanding how the price of FnO stocks behave, and the result is that their trade can be either a hit or a miss.

Recently, some stocks were removed from the FnO list – these included stocks like Syndicate Bank, Allahabad Bank, etc. Check what happened to their prices.

The prices zoomed up like crazy.

Of course, some stocks rose marginally and some stocks impacted by news continued their fall.

But the stocks that were normal and regular rose.

What does this indicate?

It indicates that the FnO is a speculative platform in which there cannot be linear movement in either direction. This is very unlike the cash stocks that can keep rising up or falling over a long period of time.

So, what should you look for after you get an alert that a stock?

You should check the price of the past few days.

To better understand this, check the DAILY chart of a regular FNO stock that’s not impacted by adverse or favorable news (ICICI Pru):

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So, what pattern do you see?

2-4 days up and 2-4 days down, barring one exception (the gap down on your left).

This is by and large how a FnO stock moves.

If it’s in an uptrend, it will move up 2-4 days, correct (long unwinding) 1-3 days and then resume its uptrend. If the market is in a bull grip, the period of the upmove will increase.

If it’s in a downtrend, it will move down 2-4 days, correct 1-3 days (short covering) and then resume its downtrend. If the market is in a bear grip, the period of the downmove will increase.

If the overall market is choppy the movement up and down will be 1-3 towards the trend and 1-2 against the trend (meaning that if the stock is in an uptrend it will move up 1-3 days in a choppy market and correct the next 1-2 days, and vice versa)

In any market, a FnO stock will ALWAYS take a breather from its past move before resuming it or lying flat.

Therefore, if you are tempted to buy a FnO stock for whatever reason, always open up its DAILY chart and check how the stock’s price has behaved in the last few days.

If it has moved up, then chances are that operators will unwind longs.

If it has moved down, then chances are that operators will cover shorts.

Now, this does not apply to stocks that are impacted by news – like DHFL, Jet, etc.

One more thing – you would have studied the chart of ICICI Prudential above and would have noticed the three large volume bars. If you want to learn how to interpret volumes with price, then you must read this article.

Summing Up:

  1. Before buying any FnO stock, always check its Daily chart and check the price movement of the past 3-4 days (week’s, preferably)
  2. If you want to dig deeper, correlate volumes with price (read up the article linked above)
  3. If you still want to dig deeper, analyze Open Interest data.

Practicing these 3 steps over a period of time will help you understand FnO price movements and your market reading will become sharper. Give it a try.

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