Whenever markets correct by 200-300 points (nifty), we tend to see a bounce of 80-100 points. this could be due to short covering or value buying by investors for long term investments.

In such cases traders looking to play the bounce, should buy stocks which have corrected a lot. any stock fallen by 20-25% can easily see a 7-8% bounce back on account of short covering/ value buying.

Off course, you need to exclude the ones which are news driven. Such stocks do not tend to recover with the markets.

Also avoid stocks which did not correct or managed to held strong when markets were correcting. These stocks tend to see profit booking once markets start recovering.

Also when entering stocks for a bounce back, always go with large caps as they are the ones that tend to bounce back first.. it is much later in the rally that we see mid/small caps catching up. At times these may not catch up either.

Another crucial part is when is the right time to enter stocks for a bounce back. Always look at long term chart of Nifty (1-2 years). Look for levels from where nifty has previously bounce back (double/ triple bottoms). Look for recent nifty lows, etc. If nifty is managing to hold onto these levels of going below these levels and immediately seeing buying interest come in, it indicates there are buyers here and we are likely to see an upmove in near term. Stoploss can be placed at nifty’s recent/ immediate low.

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