From the past experience one thing I have learnt is that markets do not fall indefinitely and bottom out immediately and if one is expecting that a falling market will keep falling without breaks then they are sure to be disappointed. Markets start falling from some kind of peak due to shorting and the shorts are bound to get covered up at one or the other point of time and then you see some kind of relief rallies on the market. This is true even in a bear market scenario where you would notice that nifty falls 500-600 points and then shows a pull back of 200-300 points and resumes the downtrend. In a bear market like we have today, the actual trend of the market remains downward but at every kind of gap down, you are likely to see a relief rally which very soon fades out as everyone sells into the market calling it an unnecessary rally.

Take a look at the graph of Nifty in the last one year : -

The bottoming process of the market started last year itself and even today after a year has passed and we are still in that process only and it should still go a month or two more for this process to get over. So clearly you can see that bottoming process actually takes time and it does not happen all of a sudden. Negative news and positive news keeps pouring in all the time and the market gives weight to all of them and thus you see some downward trend and then some pullback and so on. If the negatives are weighing heavy on the positives then the actual trend of the market remains downwards and slowly the market keeps drifting lower by making lower tops and lower bottoms, just like how our market is doing today. The only contrary to this theory is if you get some kind of worldwide financial crisis where people go crazy on the sell side.

Relief rallies are not to be taken very seriously and thus Investors should not feel that they have missed out on the buying side as markets would again give opportunities to buy into the markets unless the economy problems have gone away and bottom formation got completed and as of today, it is not the case yet. Relief rallies are only supposed to be sold and not bought. Investors need to approach buy on declines strategy rather buy on relief rallies if they are serious about making money in the long term.

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