Bounce Trading

Bounce trading is a short-term trading strategy that involves buying a stock or index after it has declined sharply and touched a well-defined support level — anticipating a temporary price recovery (bounce) back toward the mean or toward a nearby resistance level. The strategy relies on the principle that support levels act as price floors where buying interest historically revives and absorbs selling pressure. Bounce trades are typically entered when the price approaches a key technical level — such as a prior low, a moving average, a Fibonacci retracement level, or a round number — with a tight stop-loss placed just below the support. In Indian F&O markets, bounce trading is common in Nifty 50 and Bank Nifty options around key support zones, where traders buy call options at support anticipating a quick recovery rally. The risk in bounce trading is that the support level fails — a support breakdown typically leads to an accelerated move lower rather than a recovery, making risk management and position sizing critical.