Top 5 Trading Strategies to Deal with Fluctuating Stock Prices

Extreme stock market volatility often means periods of unusually sharp & unpredictable movement of benchmark indices or specific stocks due to any unexpected triggers –generally big Federal/Presidential or even influential state election outcome (like 2024 Indian Federal election and U.S. Presidential election) & geo-political events (like 2022 Ukraine war or 2024 Iran-Israel mini-war or India-Pakistan mini-war). The market may also turn volatile due to any unexpected policy action/comments by any influential central bank (like the Fed) or trade & tariff policy, as U.S. President Trump did on April 2, 2025, as a part of his Liberation Day Reciprocal tariff policy.

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Such market-moving triggers generally affect not only benchmark indices but also almost all the constituent stocks and even broader market stocks. And specific stocks may also turn volatile (in any direction, positive or negative) due to unexpected reports or any other events, affecting the outlook for the stock significantly. Overall, most of the reasons for volatilities are cyclical in nature, but there may be some structural events.

As we just entered 2026, looking ahead, the Indian market may also face unusual volatilities for not only local, but also potential global events. As India is not decoupled from the rest of the world, both Wall Street and Dalal Street usually move in unison. In addition, Dalal Street may turn volatile on either side (positive/negative) in the coming days on the fate of the US-India trade deal (BTA).

Effective strategy to deal with unexpected market volatility for high leverage trading & investing positions

Prioritise Capital Preservation and Strict Risk Management Policy

In high-leveraged F&O trading, an appropriate money management with proper position sizing is an integral part of any risk management strategy in extreme volatility or even in a normal day-to-day market, if the underlying trading signal or ideas goes wrong. The basic rule may be to limit potential risk per trade to 0.5/1.0-1.5.2.0% of total available trading capital as per one’s financial means or risk-taking capacity.

This will ensure no big damage to overall trading capital from a single adverse trade. The actual implementation of stop loss (SL) – trailing or fixed – should be based upon proper technical analysis (TA), avoiding abrupt & compulsive emotional trading decisions.

Position sizing should be dynamic – smaller (50% of normal) during any big event or economic data release, which can influence the market significantly. Even after the actual data/event, if fundamentals diverge from technicals, then it may take 50% of the normal position in the direction of the TA; if it converges, then it only goes for the normal position.

Overall position size per trade and SL will depend upon the actual trading capital, the standard rule of minimum-maximum SL (0.5%–2.0% of overall trading capital) and a back calculation of potential loss if the SL actually triggers.

Employ Hedging and Volatility-Specific Tools

In high-leveraged F&O trading, hedging is often an effective tool to minimise risk and secure time to assess the actual impact of the underlying news/trigger if employed with proper position sizing. Hedging may be employed effectively with an appropriate F&O position sizing with respect to the original trade.

For example, a trader has a long position in two lots of Nifty; to hedge, he can also short two heavyweight Nifty constituents like HDFC and RIL or any other stocks, if it deserves a short trade.

Professional traders often adopt simple to complex option strategies like long straddle, strangle, iron condors or credit spreads, using a combination of buying & selling different options. Professionals also generally maintain a F&O portfolio of longs & shorts (say 60:40) of different stocks as per their analysis (technical & fundamental) for positional short to mid-term trading; they never carry forward only long or only short.

An effective strategy to deal with unexpected market volatility for non-leveraged investment positions

Always maintain a diversified & staggered strategy for both entry & exit

Even for no-leverage short to mid-term investments, always maintain a portfolio of various sectors, including defensive sectors (FMCG, Pharma, etc.) and stocks from both large & mid-caps.

Always stagger your investments into 50% or even 25% ratios. First identify good quality stocks as per your fundamental approach from various sectors, where to invest/enter. Then employ your technical analysis knowledge on when to enter & at what price.

Identify 2–4 potential positional support (demand) zones in the technical chart and invest 50% or 25% of your investible funds at each level. This allows you to take advantage of sudden volatility with calculated risk and a rupee cost averaging approach.

Regular Hedging policy even for no-leverage portfolio investments

If a professional investor has INR 20 lakhs investible funds, he can invest 50% (INR 10 lakhs) in short to mid/long-term investments targeting 10–20% returns and at the same time trade 2–4 lots of Nifty Futures (intraday or positional) with the remaining capital.

This automatically hedges the portfolio against unexpected volatility. A conservative investor may also insure his portfolio with appropriate OTM (out-of-the-money) put options during event-specific risk phases.

Take Opportunistic "Buy the Dip" on Oversold Conditions in Quality Stocks

Always maintain the Buffett principle: buy the dip in quality stocks with strong business models and credible management. Volatility often creates temporary mispricing due to overreaction.

Accumulate gradually via staggered entries or rupee cost averaging near key support levels. This contrarian strategy works best during corrective or range-bound markets but should be applied only to quality stocks to avoid catching falling knives.

Conclusion

In every stock market—be it Wall Street or Dalal Street—unusual volatility is part of the ecosystem. From the 2007 Global Financial Crisis to the 2020 COVID lockdown, disruptions have largely been cyclical, not structural.

Smart money has always used volatility as an opportunity with a disciplined, contrarian approach. Preparation, not prediction, creates alpha.

Summary of Ideal Strategies

• Capital preservation with strict risk control (especially in F&O trading)
• Adopt effective hedging policies (even for portfolio investments)
• Diversify portfolios with staggered entry & exit strategies
• Avoid impulsive, emotional decisions like FOMO or revenge trading
• Do not treat the stock market as a casino
• Adopt a contrarian but disciplined approach with calculated risks
• Use mean-reversion or breakout tactics with multi-timeframe confirmation
• Apply both fundamental & technical analysis for entry and exit decisions