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SUMMER PROJECT REPORT ON
TECHNICAL ANALYSIS IN
FOREIGN EXCHANGE
WITH REFERENCE TO
(SPAN CAPLEASE PVT. LTD.)
BY
Vaghela Ajay
.
SUBMITTED TO:
C.K.SHAH VIJAPURWALA INSTITUTE OF
MANAGEMENT, VADODARA.
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ACKNOWLEDGEMENT
It is almost inevitable to incur indebtedness to all who generously helped by
sharing their invaluable time and rich experience with me, without which this
project would have never been accomplished.With regards to my project with Span Caplease Pvt. Ltd., I would like to
thank each & every one who offered help, guidelines & support whenever
required.
No task can be achieved alone, particularly while attempting to finish a
project of such magnitude. It took many very special people to facilitate it and
sup3port it. Hence, I would like to acknowledge all of their valuable support
and convey our humble gratitude to them.
I would like to acknowledge my sincere gratitude to my mentor Miss Neha
& the director Mr. Kaushal Shah for sharing their valuable ideas,
constructive criticism and motivation, which were the guiding, light during the
entire tenure of this work.
In our efforts we would not forget the contribution of our institute
CKSVIM. I express a deep gratitude to my institute for the valuable support,
guidance and encouragement during the summer internship.
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PREFACE
Summer training is an integral part of the MBA programme. The main objectiveof the Summer Training is to work in the organization and gain the valuableknowledge of management skills that will be useful in the future career
building.
The purpose is to study how an organization functions and how to apply our
theoretical knowledge in the professional life. As a practical point of view for
training We have selected Span Caplease Pvt. Ltd. which is one of the leading
brokerage house in Gujarat. It helps to get better understanding of stock market.
Now a days, share market business is on expansion path. Most of the people are
investing in the share market, even a people who are illiterate also investing in ashare market. This repot contain using of technical analysis in the trading offoreign exchange.
This report helps to people to know various terms and various way ofcalculating brokerage. We hope this report helps to people understand clearlyregarding stock exchange.
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EXECUTIVE SUMMARY
The summer internship at SPAN CAPLEASE undertaken by us has given us
an exposure into the investment scenario in India. The project that we were
involved with while working at SPAN CAPLEASE includes advisory
services i.e. educating the existing and potential investors about stock market as
an alternative source to investment. This involves catering to the queries of the
investors about the concept of stock market, the various options that an investor
can invest his money into, funds management of investors.
Analyzing the investors behavior includes understanding the concerns a
person has towards Stock Market, his stages in life and wealth cycle, the effect
of the investments made by the peer groups, effect of the profession he/she is
in, education qualification, importance of tax benefits, the most preferred saving
tool etc. and this all is analyzed with the help of a schedule prepared.
This project helps us to understand foreign exchange trading with the use of
the various tools of technical analysis. The technical analysis is more helpful to
take right decision regarding buying & selling of any currency. Thus, the
foreign exchange traders can get the advantage of accurate decision-making.
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INDEX
NO. Particulars Page No.
1. Industry Overview
A brief history of stock exchange
Online trading process
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10
2. Company Profile
Introduction to Span Caplease
About Span Caplease
Management Team
Spans logo
Spans vision
Spans mission
Organization Structure
Products of Span Caplease
Investment advisory services
Commodity
Benefits at Span
Depository Participant Service
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13
14
16
17
18
19
20
21
23
24
25
25
3. Technical analysis
Introduction
Importance
4 important points of view
Types of charts
Methods of TA
Patterns
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27
27
28
40
48
4. History of foreign exchange 56
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5. Introduction to foreign exchange 59
6. How the Currencies are traded? 62
7. Conclusion 71
8. Bibliography 72
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A BRIEF HISTORY OF STOCK EXCHANGES:-
Do you know that the world's foremost
market place New York Stock Exchange
(NYSE), started its trading under a tree (now
known as 68 Wall Street) over 200 years ago?
Similarly, India's premier stock exchange Bombay
Stock Exchange (BSE) can also trace back its
origin to as far as 125 years when it started as a
voluntary non-profit making association.
You hear about it any time it reaches a new high or a new low, and you
also hear about it daily in statements like 'The BSE Sensitive Index rose 5%
today'. Obviously, stocks and stock markets are important. Stocks of public
limited companies are bought and sold at a stock exchange. But what really are
stock exchanges? Known also as News on the stock market appears in different
media every day. The stock market or bourse, a stock exchange is an organized
market place for securities (like stocks, bonds, options) featured by the
centralization of supply and demand for the transaction of orders by member
brokers, for institutional and individual investors. The exchange makes buying
and selling easy. For example, you don't have to actually go to a stockexchange, say, BSE - you can contact a broker, who does business with the
BSE, and he or she will buy or sell your stock on your behalf. All stock
exchanges perform similar functions
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With respect to the listing, trading, and clearing of securities, differing only in
their administrative machinery for handling these functions. Most stock
exchanges are auction markets, in which prices are determined by competitive
bidding.
Trading may occur on a continuous auction basis, may involve brokers
buying from and selling to dealers.
In certain types of stock or it may be conducted through specialists
dealing in a particular stock. But where did it all start? The need for stock
exchanges developed out of early trading activities in agricultural and other
commodities. During the middle Ages, traders found it easier to use credit that
required supporting documentation of drafts, notes and bills of exchange. The
history of the earliest stock exchange, the French stock exchange, may be traced
back to 12th century when transactions occurred in commercial bills of
exchange.
The first stock exchange in India, Bombay Stock Exchange was
established in 1875 as 'The Native Share and Stockbrokers Association' and has
evolved over the years into its present status as the premier stock exchange in
the country. It may be noted that BSE is the oldest stock exchange in Asia, even
older than the Tokyo Stock Exchange, which was founded in 1878. The
country's second stock exchange was established in Ahmedabad in 1894,
followed by the Calcutta Stock Exchange (CSE). CSE can also trace its origin
back to 19th century. From a get together under a 'Neem Tree' way back in the
1830s, the CSE was formally established in May 1908.
India's other major stock exchange National Stock Exchange (NSE),
promoted by leading financial institutions, and was established in April 1993.
Over the years, several stock exchanges have been established in the major
cities of India. There are now 23 recognized stock exchanges Mumbai (BSE,
NSE and OTC), Calcutta, Delhi, Chennai, Ahmedabad, Bangalore,
Bhubaneswar, Coimbatore, Guwahati, Hyderabad, Jaipur, Kochi, Kanpur,
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Ludhiana, Mangalore, Patna, Pune, Rajkot, Vadodara, Indore and Meerut.
Today, most of the global stock exchanges have become highly Efficient,
computerized organizations. Computerized networks also made it possible to
connect to each other and have fostered the growth of an open, global securities
market.
Realizing there is untapped market of investors who want to be able to
execute their own trades when it suits them, brokers have taken their trading
rooms to the Internet. Known as online brokers, they allow you to buy and sell
shares via Internet.
Online Trading is a service offered on the Internet for purchase and sale of
shares. In the real world, you place orders on your stockbroker either verbally
(personally or telephonically) or in a written form (fax). In Online Trading, you
will access a stockbroker's website through your internet-enabled PC and place
orders through the broker's internet-based trading engine. These orders are
routed to the Stock Exchange without manual intervention and executed thereon
in a matter of a few seconds.
There are 2 types of online trading service: discount brokers and full service
online broker. Discount online brokers allow you to trade via Internet at
reduced rates. Some provide quality research, other dont. Full service online
brokerage is linked to existing brokerages. These brokers allow their clients to
place online orders with the option of talking/ chatting to brokers if advice is
needed. Brokerage rates here are higher. Indiainfoline.com, span caplease,
ICICIDirect.Com, IndiaBulls.Com, AngelBroking.com,
HDFCSecurities.Com is some of the online broking sites in India.
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ONLINE TRADING PROCESS:-
The various transactions involved in online trading can be shown from the point
of view of the
Client
Broker
Stock Exchange.
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Online trading process
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COMPANY PROFILE
INTRODUCTION AND HISTORY:-
SPAN CAPLEASE is the retail broking Firm, an organization with
more than eight decades of trust & credibility in the stock market. It is India's
leading retail financial Services Company. While our size and strong balance
sheet allow us to provide you with varied products and services at very
attractive prices, our over Client Relationship Managers are dedicated to
serving your unique needs. SPAN CAPLEASE is lead by a highly regarded
management team that has invested into a world class Infrastructure that
provides our clients with real-time service & 24/7 access to all information and
products. Our flagship SPAN CAPLEASE Professional Network offers real-
time prices, detailed data and news, intelligent analytics, and electronic trading
capabilities, right at your fingertips. This powerful technology complemented
by our knowledgeable and customer focused Relationship Managers. We are
creating a world of Smart Investor.
SPAN CAPLEASEoffers a full range of financial services and products
ranging from Equities to Derivatives enhance your wealth and hence, achieve
your financial goals. SPAN CAPLEASE Client Relationship Managers are
available to you to help with your financial planning and investment needs. To
provide the highest possible quality of service, SPAN CAPLEASE Broking
provides full access to all our products and services through multi-channels.
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INTRODUCTION TO SPAN
In a shot span of 12 years since inception, the SPAN Group has emerged as
one of the top five retail stock broking houses in India, having membership of
BSE, NSE and the two leading Commodity Exchanges in the country i.e.
NCDEX & MCX. span is also registered as a Depository Participant with
CDSL.
The group is promoted by Mr. ANIL SHAH, who started this business as a
sub-broker in 1987 with a team of 3. Today the SPAN CAPLEASE group is
managed by a team of 35 direct employees and has a nationwide network
comprising of Regional hubs, and sub brokers & business associates. SPAN
CAPLEASE is 100% focused on retail stock broking business unlike any
other larger national broking house. The group currently services more than
thousand retail clients.
SPAN CAPLEASE habitually generates value added features without
the cost burden being passed on to the clients as they strongly believe that better
understanding of clients needs and wants is their top priority. Their e-broking
facility is one such effort, which gives the client a platform to access state of the
art trading facility at the click of a button.
SPAN CAPLEASE has always strived for delivering customer delight
and developing strong long term bonds with its clients as well as channel
partners. SPAN CAPLEASE thrives on a vision to introduce new and
innovative products and services constantly. Moreover, SPAN CAPLEASE
has been among the pioneers to introduce the latest technological innovations
and integrate them efficiently within its business.
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About the SPAN
SPAN CAPLEASE tryst with excellence in customer relations began more
than 12 years ago. SPAN Group has emerged as one of the top retail broking
houses in Gujarat and incorporated in 1998. Today, SPAN has emerged as a
premium Indian stock-broking and wealth management house, with an absolute
focus on retail business and a commitment to provide "Real Value for Money"
to all its clients.
It has memberships on BSE, NSE and the leading commodity exchanges in
India NCDEX & MCX. Span is also registered as a depository participant with
CDSL.
SPAN Group Companies
Span Caplease pvt ltdMember on the BSE and Depository
Participant with CDSL
Span Caplease pvt ltdMembership on the NSE Cash and Futures &
Options Segment
SPAN Commodities &
Derivatives Pvt LtdMember on the NCDEX & MCX
Span Caplease pvt ltd Member on the BSE
Incorporated : 1998
BSE Membership :2004
NSE membership : 2005
Member of NCDEX and MCX
Depository Participants with CDSL
SPANs presence:-
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Nation- wide network of regional hubs
Presence cities
Thousand+ sub brokers & business associates
Thousand+ clients
Management
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S.No Name Designation & Department
1. Mr. Anil shah Founder Chairman & Managing Director
2. Mr. Kaushal shah Director
3. Miss.Neha Span Technical Trading (Marketing)
4. Mr. Ravi Sales and Marketing
.
SPAN LOGO
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SPAN VISION
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Spans Mission
At SPAN we exists to provide
Service Excellence
Personal Touch
Always Accessible
New Ideas
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OUR ORGANIZATIONAL STRUCTURE
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Products of SPAN Broking
1. Online Trading
2. Commodities
3. DP Services
4. PMS (Portfolio Management Services)
5. Insurance
6. IPO Advisory
7. Mutual Fund
8. Personal loans
9. Quality assurance
Online- Trading
Specially designed for the net savvy traders and investors who prefer
operating from their home or office through the internet. The investor can
access state of the art Technology with three different e-broking products
and voila trading on BSE, NSE, F & O, MCX and NCDEX.
SPAN DIET
Application based product for Traders.
Application based ideal for traders.
Multiple exchanges on single screen
Online fund transfer facility
User friendly & simple navigation
BSC, NSC, F&O, MCX & NCDEX
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SPAN ANYWHERE
Application based product for Traders with Charts.
Application-based platform for day traders
Intra-day/historical charts with various indicators
Online fund transfer facility
BSC, NSC, Cash & Derivatives
SPAN TRADE
Browser based product for Active Investors.
Browser based for investor
No installation required
Advantage of mobility
Trading as simple as internet surfing
BSC, NSC, F&O, MCX & NCDEX
SPAN INVESTOR
User-friendly browser for investors
Easy online trading platform
Works in proxy and firewall system set up
Integrated Back office: Access account information anytime,
anywhere
Streaming quotes
Refresh static rates when required
Multiple exchanges on single screen
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Online fund transfer facility
Investment Advisory Services
To derive optimum returns from equity as an asset class requires
professional guidance and advice. Professional assistance will always be
beneficial in wealth creation. Investment decisions without expert advice would
be like treating ailment without the help of a doctor.
Expert Advice: Their expert investment advisors are based at various
branches across India to provide assistance in designing and monitoring
portfolios.
Timely Entry & Exit: Their advisors will regularly monitor
customers investments and guide customers to book timely profits. They
will also guide them in adopting switching techniques from one stock to
another during various market conditions.
De-Risking Portfolio: A diversified portfolio of stocks is always
better than concentration in a single stock. Based on their research, they
diversify the portfolio in growth oriented sectors and stocks to minimize the
risk and optimize the returns.
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Commodities
A commodity is a basic good representing a monetary value. Commodities
are most often used as inputs in the production of other goods or services. With
the advent of new online exchange, commodities can now be traded in futures
markets. When they are traded on an exchange, Commodities must also meet
specified minimum standards known as basic grade.
Types of Commodities
Precious Metals : Gold and Silver
Base Metals : Copper, Zinc , Steel and Aluminum
Energy : Crude Oil, Brent Crude and Natural Gas
Pulses : Chana , Urad and Tur
Spices : Black Pepper, Jeera, Turmeric , Red Chili
Others : Guar Complex, Soy Complex, Wheat and Sugar
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Benefits at SPAN
Three different online products tailored for traders & investors.
Single Screen customized market-watch for MCX / NCDEX with BSE /
NSE.
Streaming Quotes and real time Rates. Intra-day trading calls.
Research on 25 Agro Commodities, Precious and Base Metals, Energy
products and Polymers.
An array of daily, weekly and special research reports.
Highly skilled analysts with professional industry experience.
Active relationship management desk.
Seminars, workshops and investment camps for investors
Depositary Participant Services
SPAN CAPLEASE is a DP services provider though CDSL. We offer
depository services to create a seamless transaction platform to execute trades
through SPAN group of companies and settle these transactions through Span
Depository services.
Wide branch coverage
Personalized/attentive services of trained a dedicated staff
Centralized billing & accounting
Daily statement of transaction & holdings statement on e-mail
No charges for extra transaction statement & holdings statement
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their own ideas on setting up their indicators. These differences are calledhaving your own trading system. You can take 10 different traders and you will
probably get 10 different systems that give different signals. These differencesare what make a market work.
Technical analysis is very useful in forex trading. It makes up only one portionof what you need to know when trading, but it is a very important thing to learn.
Understanding technical analysis will give the charts some meaning when youlook at them and help you understand why certain price movements occurred.
THE IMPORTANCE OF TECHNICAL ANALYSIS
Traders have a second tool to use in trading. Technical analysis, which hasbecome extremely popular in the last two decades, consists of using charts,trend lines, support and resistance levels, technical indicators, and pattern
identification to study the market's behavior. Traders use these technical factorsto identify buying and selling opportunities. Over long historical periods,currency behavior has produced trends and patterns that are identifiable.
4 IMPORTANT POINTS OF VIEW
PRICE: Changes in price reflect changes in investor psychology and demandfor and supply of securities.
TIME: The degree of movement in prices is a function of time.
VOLUME: The intensity of the price changes is reflected in the volume oftransaction that accompanies the change.
BREADTH: Market breadth studies the extent to which price changes havetaken place number of stocks in comparison with direction of market trend.
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TYPES OF CHARTS
Line charts: Line charts are simple graphs drawn by plotting the closing pointsof the instruments for given time frame and connecting the points thus plottedover a period of time. We can draw line chart using high, low and open prices
but charts drawn with the help of closing price are most commonly used. Belowis the example of line chart
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Bar charts: Bar chart is providing more information about prices movementduring selected time frame than line chart. In order to draw a line chart, dayshigh, open, low and closing price are considered. To plot a stocks price
movement, the high and low reached on a said time (1-min, 3-min, and 10-min,daily, weekly) is marked and connected by a vertical line. On the left side ofvertical line opening price is indicated by a small horizontal tick and on theright side of the line closing price indicated by a small horizontal tick so final
picture of bar looks like given below.
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Candle stick charts: The construction of candle stick chart is mostly same likebar chart. A price chart that displays the high, low, open and close for a securityeach day over a specified period of time on a single stick. On a single stick topis indicated as high of the day, bottom of the stick is indicated as low of theday. However the terminology used is quite different from the bar chart. A
single day market has given close higher than open than color of the body willbe green. And if close lower than open than the color of the body will be red.Below given is the example of the candle stick chart.
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Bar Compared to Candlestick Charts
Below is an example of the same price data conveyed in a standard bar chart
and a candlestick chart. Notice how the candlestick chart appears 3-
dimensional, as price data almost jumps out at you.
( 3a )
( 3b )
The long, dark, filled-in real bodies represent a weak (bearish) close ( 3a ),
while a long open, light-colored real body represents a strong (bullish) close
( 3b ). It is important to note that Japanese candlestick analysts traditionally
view the open and closing prices as the most critical of the day. At a glance,notice how much easier it is with candlesticks to determine if the closing price
was higher or lower than the opening price.
Common Candlestick Terminology
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The following is a list of some individual candlestick terms. It is important to
realize that many formations occur within the context of prior candlesticks.
What follows is merely a definition of terms, not formations.
TheBlackCandlestick -- when the close is lower than the open.
The White Candlestick -- when the close is higher than the open.
The Shaven Head-- a candlestick with no upper shadow.
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The Shaven Bottom -- a candlestick with no lower shadow.
Spinning Tops -- candlesticks with small real bodies, and when appearing
within a sideways choppy market, they represent equilibrium between the
bulls and the bears. They can be eitherwhite orblack.
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Doji Lines -- have no real body, but instead have a horizontal line. This
represents when the Open and Close are the same or very close. The
length of theshadow can vary.
Candlestick Reversal Patterns
Just as many traders look to bar charts for double tops and bottoms, head-and-
shoulders, and technical indicators for reversal signals, so too can candlestick
formations be looked upon for the same purpose. A reversal does not always
mean that the current uptrend/downtrend will reverse direction, but merely that
the current direction may end. The market may then decide to drift sideways.
Candlestick reversal patterns must be viewed within the context of prior activity
to be effective. In fact, identical candlesticks may have different meanings
depending on where they occur within the context of prior trends and
formations.
Hammer-- a candlestick with a long lower shadow and small real body.
Theshadow should be at least twice the length of the real body, and there
should be no or very little upper shadow. The body may be eitherblack
orwhite, but the key is that this candlestick must occur within the context
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of a downtrend to be considered a hammer. The market may be
"hammering" out a bottom.
Hanging Man -- identical in appearance to the hammer, but appears
within the context of an uptrend.
Engulfing Patterns -- Bullish -- when a white, real body totally covers,
"engulfs" the prior day's real body. The market should be in a definable
trend, not chopping around sideways. The shadows of the prior
candlestick do not need to be engulfed.
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Bearish -- when a black, real body totally covers, "engulfs" the prior
day's real body. The market should be in a definable trend, not chopping
around sideways. The shadows of the prior candlestick do not need to be
engulfed.
Dark-Cloud Cover(bearish) -- a top reversal formation where the first
day of the pattern consists of a strong white, real body. The second day's
price opens above the top of the upper shadow of the prior candlestick,
but the close is at or near the low of the day, and well into the priorwhite, real body.
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Piercing Pattern (bullish) -- opposite of the dark-cloud cover. Occurs
within a downtrend. The first candlestick having a black, real body, and
the second has a long, white, real body. The white day opens sharply
lower, under the low of the prior black day. Then, prices close above the
50% point of the prior day's black real body.
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METHOD OF TECHNICAL ANALYSIS
There are 22 methods of technical analysis and from them one of them is
RETRACEMENT LEVEL (MONTHLY)
There are 3 types of retracement levels available in the market and they are
Down Trend Retracement Level: is the level till what level the price will pullback is called retracement level.
Up Trend Retrenchment Level: is the level till how much it will correct theprice of the particular share.
There are levels of retracement and they are
38.2%
50%
61.8%
The above given numbers are Fibonacci numbers. As per the Fibonacciretracement numbers market will remain in same trend till market give close
below this three levels. Lets take an example to understand it clearly.
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RETRACEMENT LEVEL (DAILY):In relative strength indices we arecombining here RSI price indicator.
POSITIVE DIVERGENCE: means when price is making lower bottoms andrelative strength indices indicator is making higher bottom at the same time,this type of resource formation is called positive divergence.
NEGATIVE DIVERGENCE: means when price is making higher bottomsand relative strength indices indicator is making lower bottoms at the sametime, this type of resource formation is called negative divergence.
Now let understand this chart by taking a live example of the USD/INR.
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And the chart explains above the price chart of USD/INR. This chart is makinglower bottom and RSI indicator is making higher bottom. This indicator saysthat downside risk in USD/INR is limited. And the underline can rise from thislevel.
We have seen above the example of the technical analysis and its one of thetechnique i.e. retracement levels for monthly as well as daily charts.
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MOVING AVERAGE
The moving average (MA) method is one of the most widely used methods oftechnical analysis. It includes different versions and levels of sophistication. Asdistinct from a diagrammatic technical analysis, the MA method is easy toquantify and apply in investment decision-making or empirical tests. Methodsof technical analysis that are based on diagrammatic analysis methods are
subjective and hence difficult to apply or examine empirically. The MA methodin contrast enables the construction of a computerized algorithm for theapplication of the method, and the indications of buy or sells signals. A movingaverage is an average of observations from several consecutive time periods. Tocompute a moving average sequence, we compute successive averages of agiven number of consecutive observations. The objective underlying the MAmethod is to smooth out seasonal variation in the data.
This technical analysis method is intended to provide a decision rule concerning
the appropriate investment position. The method involves a comparison of themost recent market price or index with the long MA of the price or indexvector. If the current price is higher than the long MA, a long investment
position should be adopted, and conversely, if the current price is lower than theMA, a short position should be adopted. In another variant of the method, thecurrent price or index can be replaced with a short MA, so that the use of themethod involves the comparison of the short MA with the long one.
Most chart patterns show a lot of variation in price movement. This can make itdifficult for traders to get an idea of a security's overall trend. One simple
method traders use to combat this is to apply moving averages. A movingaverage is the average price of a security over a set amount of time. By plottinga security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trendand increase the probability that it will work in their favor.
Types of Moving Averages
There are a number of different types of moving averages that vary in theway they are calculated, but how each average is interpreted remains thesame. The calculations only differ in regards to the weighting that they
place on the price data, shifting from equal weighting of each price pointto more weight being placed on recent data. The three most commontypes of moving averages are simple, linear and exponential.
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Simple Moving Average (SMA)
This is the most common method used to calculate the moving average ofprices. It simply takes the sum of all of the past closing prices over thetime period and divides the result by the number of prices used in thecalculation. For example, in a 10-day moving average, the last 10 closing
prices are added together and then divided by 10. As you can see inFigure 1, a trader is able to make the average less responsive to changing
prices by increasing the number of periods used in the calculation.Increasing the number of time periods in the calculation is one of the bestways to gauge the strength of the long-term trend and the likelihood thatit will reverse.
Figure 1Many individuals argue that the usefulness of this type of average is limited
because each point in the data series has the same impact on the result
regardless of where it occurs in the sequence. The critics argue that the mostrecent data is more important and, therefore, it should also have a higherweighting. This type of criticism has been one of the main factors leading to theinvention of other forms of moving averages.
Linear Weighted Average
This moving average indicator is the least common out of the three and is usedto address the problem of the equal weighting. The linear weighted movingaverage is calculated by taking the sum of all the closing prices over a certain
time period and multiplying them by the position of the data point and thendividing by the sum of the number of periods. For example, in a five-day linearweighted average, today's closing price is multiplied by five; yesterday's by fourand so on until the first day in the period range is reached. These numbers arethen added together and divided by the sum of the multipliers.
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Exponential Moving Average (EMA)
This moving average calculation uses a smoothing factor to place a higherweight on recent data points and is regarded as much more efficient than thelinear weighted average. Having an understanding of the calculation is notgenerally required for most traders because most charting packages do thecalculation for you. The most important thing to remember about theexponential moving average is that it is more responsive to new informationrelative to the simple moving average. This responsiveness is one of the keyfactors of why this is the moving average of choice among many technicaltraders. As you can see in Figure 2, a 15-period EMA raises and falls faster thana 15-period SMA. This slight difference doesnt seem like much, but it is animportant factor to be aware of since it can affect returns.
Figure 2
Major Uses of Moving Averages
Moving averages are used to identify current trends and trend reversals aswell as to set up support and resistance levels.
Moving averages can be used to quickly identify whether a security ismoving in an uptrend or a downtrend depending on the direction of themoving average. As you can see in Figure 3, when a moving average is
heading upward and the price is above it, the security is in an uptrend.Conversely, a downward sloping moving average with the price belowcan be used to signal a downtrend.
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Figure 3Another method of determining momentum is to look at the order of a pair ofmoving averages. When a short-term average is above a longer-term average,the trend is up. On the other hand, a long-term average above a shorter-termaverage signals a downward movement in the trend.
Moving average trend reversals are formed in two main ways: when the pricemoves through a moving average and when it moves through moving averagecrossovers. The first common signal is when the price moves through animportant moving average. For example, when the price of a security that wasin an uptrend falls below a 50-period moving average, like in Figure 4, it is asign that the uptrend may be reversing.
Figure 4
The other signal of a trend reversal is when one moving average crossesthrough another. For example, as you can see in Figure 5, if the 15-day movingaverage crosses above the 50-day moving average, it is a positive sign that the
price will start to increase.
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Figure 5
If the periods used in the calculation are relatively short, for example 15 and 35,this could signal a short-term trend reversal. On the other hand, when twoaverages with relatively long time frames cross over (50 and 200, for example),this is used to suggest a long-term shift in trend.
Another major way moving averages are used is to identify support andresistance levels. It is not uncommon to see a stock that has been falling stop itsdecline and reverse direction once it hits the support of a major movingaverage. A move through a major moving average is often used as a signal bytechnical traders that the trend is reversing. For example, if the price breaksthrough the 200-day moving average in a downward direction, it is a signal thatthe uptrend is reversing.
Figure 6
Moving averages are a powerful tool for analyzing the trend in a security. Theyprovide useful support and resistance points and are very easy to use. The mostcommon time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to bea good measure of a trading year, a 100-day average of a half a year, a 50-dayaverage of a quarter of a year, a 20-day average of a month and 10-day averageof two weeks.
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Moving averages help technical traders smooth out some of the noise that isfound in day-to-day price movements, giving traders a clearer view of the pricetrend.
PATTERNS:
HEAD AND SHOULDERS
The Head and Shoulders formation is one of the most reliable and well knownof all the major reversal patterns. It is also one of the most popular formationsthat have been studied thousands of time by analysts.
On the Technical analysis chart, when aprice trend is in the process of reversaleither from abullish or bearish trend, a characteristic pattern takes shape and isrecognized as reversal formation.
Formations
Head and Shoulders Top
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Head and Shoulders Bottom
Head and Shoulders Top
Head and Shoulders formation consists of a left shoulder, a head, and a rightshoulder and a line drawn as the neckline. The left shoulder is formed at the endof an extensive move during which volume is noticeably high. After the peak ofthe left shoulder is formed, there is a subsequent reaction and prices slide downup to a certain extent which generally occurs on low volume. The prices rallyup to form the head with normal or heavy volume and subsequent reactiondownward is accompanied with lesser volume. The right shoulder is formedwhen prices move up again but remain below the central peak called the Headand fall down nearly equal to the first valley between the left shoulder and thehead or at least below the peak of the left shoulder. Volume is lesser in the rightshoulder formation compared to the left shoulder and the head formation. A
neckline is drawn across the bottoms of the left shoulder, the head and the rightshoulder. When prices break through this neckline and keep on falling afterforming the right shoulder, it is the ultimate confirmation of the completion ofthe Head and Shoulders Top formation. It is quite possible that prices pull backto touch the neckline before continuing their declining trend.
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Head and Shoulders Bottom
This formation is simply the inverse of a Head and Shoulders Top and oftenindicates a change in the trend and the sentiment. The formation is upside downin which volume pattern is different than a Head and Shoulder Top. Pricesmove up from first low with increase volume up to a level to complete the leftshoulder formation and then falls down to a new low. It follows by a recoverymove that is marked by somewhat more volume than seen before to completethe head formation. A corrective reaction on low volume occurs to startformation of the right shoulder and then a sharp move up that must be on quiteheavy volume breaks though the neckline.
Another difference between the Head and Shoulders Top and Bottom is that theTop Formations are completed in a few weeks, whereas a Major Bottom (Left,right shoulder or the head) usually takes a longer, and as observed, may prolongfor a period of several months or sometimes more than a year.
TRIANGLE
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When price fluctuation stay in a trading range and that trading range becomes
progressively smaller with the passage of time triangle formation occurs.Identifying triangle patterns allows for trading opportunity during formation
and after a breakout from the pattern. A triangle could signal reversal or
continuation of the trend but not very reliable formation. The Normal triangle
looks like.
Symmetrical Triangle:-
Descending Triangle
Ascending Triangle
These types of triangles usually have price movement from one end of
the triangle to the other and if the breakout occurs then the target price is equal
to the difference of the two points at the base of the Triangle and this target is
normally achieved at the point where the two lines of the Triangle meet in
terms oftime.
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Relative Strength Index(RSI)
RSI indicates overbought &oversold conditions. When the value of RSI isabove 70,then it indicates overbought. Here the stock price is undervalued,so it gives selling signal. When the value of RSI is below 30, then itindicates oversold . the stock price is overvalued, so it gives buying signal.
Importance of Neckline
The drawn neckline of the pattern represents a support level, and assumptioncannot be taken that the Head and Shoulder formation is completed unless it
is broken and such breakthrough may happen to be on more volume or maynot be. The breakthrough should not be observed carelessly. A serioussituation can occur if such a break is more than three to four percent.
When a stock drifts through the neckline on small volume, there may be awave up, although it is not certain, but it is observed, the rally normally doesnot cross the general level of the Neckline and before selling pressureincreases, the steep decline occurs and prices tumble with greater volume.
Characteristics
Most of the time Head and Shoulders are not perfectly shaped. Thisformation is slightly tilted upward or downward.
One shoulder may appear to droop. On many chart patterns, any one of the two shoulders may appear
broader than the other which is caused by the time involved in theformation of the valleys.
The neckline may not be perfectly horizontal; it may be ascending ordescending.
If the neckline is ascending then the only qualification of theformation lies in the fact that the lowest point of the right shouldermust be noticeably lower than the peak of the right shoulder.
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Usage as a tool
Head and Shoulders is an extremely useful tool after its confirmation toestimate and measure the minimum probable extent of the subsequent movefrom the neckline. To find the distance of subsequent move, measure thedistance from the peak of the head to the neckline. Then measure the samedistance down from the neckline to the point where prices penetrate theneckline after the completion of the right shoulder. This gives the minimumobjective of how far prices can decline after the completion of this topformation. In case, if the price advance preceding the Head and Shoulderstop is not long, the subsequent price fall after its completion may be small aswell.
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Example of daily intraday trading by using parameters of technical
analysis:
Analysis of the chart:
This is the chart of daily intraday trading at 21st June,2010. In this chart, wehave used three studies which include: moving average, RSI & volume. The
blue line shows 5days MA & the green line shows 21days MA. At thebottom of the chart the blue line shows the RSI value.
Moving Average
Time Price Buy/Sell Profit/Loss
10:19 185.5 Buy -
11:55 187.2 Sell 1.7
12:22 187.3 Buy
13:31 188.5 Sell 1.2
14:25 188.3 Buy
15:10 188.1 Sell (0.2)
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RSI
Time Value Buy/sell
11:13 71.55 Sell
12:45 70.27 Sell
12:55 80 Sell
15:22 26.38 buy
Volume
The volume study indicates that if we will take buy/sell decision, then thestudy shows whether the volume supporting or not.
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FOREIGN EXCHANGE
History
FOREX, an acronym for Foreign Exchange, is the largest financial marketin the world. With an estimated $1.5 trillion in currencies traded daily,Forex provides income to millions of traders and large banks worldwide.
The market is so large in volume that it would take the New York StockExchange, with a daily average of under $20 billion, almost three months toreach the amount traded in one day on the Foreign Exchange Market. Forex,unlike other financial markets, is not tied to an actual stock exchange. Forexis an over-the-counter (OTC) or off-exchange market.
The central government has wide powers to control transactions in foreignexchange. Until 1992 all foreign investments and the repatriation of foreigncapital required prior approval of the government. The Foreign-ExchangeRegulation Act, which governs foreign investment, rarely allowed foreign
majority holdings. However, a new foreign investment policy announced inJuly 1991 prescribed automatic approval for foreign investments in thirty-four industries designated high priority, up to an equity limit of 51 percent.Initially the government required that a company's automatic approval mustrely on matching exports and dividend repatriation, but in May 1992 thisrequirement was lifted, except for low-priority sectors. In 1994 foreign andnonresident Indian investors were allowed to repatriate not only their profits
but also their capital. Indian exporters are also free to use their exportearnings as they see fit. However, transfer of capital abroad by Indian
nationals is only permitted in special circumstances, such as emigration.Foreign exchange is automatically made available for imports for whichimport licenses are issued.
Because foreign-exchange transactions are so tightly controlled, Indianauthorities are able to manage the exchange rate, and from 1975 to 1992 therupee was tied to a trade-weighted basket of currencies. In February 1992,
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the government began moves to make the rupee convertible, and in March1993 a single floating exchange rate was implemented. In July 1995,Rs31.81 was worth US$1, compared with Rs7.86 in 1980, Rs12.37 in 1985,and Rs17.50 in 1990.
PURPOSE
The foreign exchange market is the mechanism by which currencies arevalued relative to one another, and exchanged. An individual or institution
buys one currency and sells another in a simultaneous transaction. Currencytrading always occurs in pairs where one currency is sold for another and isrepresented in the following notation: EUR/USD or CHF/YEN. Theexchange rate is determined through the interaction of market forces dealingwith supply and demand.
Foreign Exchange Traders generate profits, or losses, by speculatingwhether a currency will rise or fall in value in comparison to anothercurrency. A trader would buy the currency which is anticipated to gain invalue, or sell the currency which is anticipated to lose value against anothercurrency. The value of a currency, in the simplest explanation, is a reflectionof the condition of that country's economy with respect to other majoreconomies. The Forex market does not rely on any one particular economy.
Whether or not an economy is flourishing or falling into a recession, a tradercan earn money by either buying or selling the currency. Reactive trading isthe buying or selling of currencies in response to economic or politicalevents, while speculative trading is based on a trader anticipating events.
BACKGROUND
Historically, Forex has been dominated by inter-world investment and
commercial banks, money portfolio managers, money brokers, largecorporations, and very few private traders. Lately this trend has changed.With the advances in internet technology, plus the industry's uniqueleveraging options, more and more individual traders are getting involved inthe market for the purposes of speculation. While other reasons for
participating in the market include facilitating commercial transactions(whether it is an international corporation converting its profits, or hedging
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against future price drops), speculation for profit has become the mostpopular motive for Forex trading for both big and small participants.
8 MAJOR CURRENCIES
Whereas there are thousands of securities on the stock market, in theFOREX market there are 112 currencies from them below given arecurrencies are highly traded:
The U.S. Dollar ($),
European Currency Unit (),
Japanese Yen (),
British Pound Sterling (),
Swiss Franc (SF),
Canadian Dollar (Can$)
And to a lesser extent, the Australian and New Zealand Dollars.
These major currencies are most often traded because they representcountries with esteemed central banks, stable governments, and relativelylow inflation rates. Currencies are also always traded in pairs (i.e. USD/JPYor Dollar/Yen) at floating exchange rates.
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INTRODUCTION
If there was only one currency in the world, there would not have been anyneed for foreign exchange market, foreign exchange rates or foreignexchange. But in a world of many national currencies, the foreign exchangemarket plays the crucial role of providing the requisite machinery formaking payments across borders, transferring funds and purchasing powerfrom one currency to another, and determining the exchange rate.
The fundamental changes in foreign exchange, or FX, market began to take
form in 1970s along with the increasing internationalization of financialtransactions and the change of many economies into floating exchange ratesystem from fixed rate system. Over years, these changes have transformedthe foreign exchange market into the worlds biggest and most dynamicmarket. The daily turnover of global FX market currently amounts to manytrillions of dollars ($1 trillion = $1000 billion). In majority of thesetransactions, the U.S. dollar is on the one side.
Most FX market trades involve buying and selling bank depositsdenominated in different currencies. The major instruments used in the FX
markets are spot, outright forwards, FX swaps, currency options, currencyswaps, currency futures and exchange traded options.
Four key concepts are important in understanding the basics of the workingof this extremely complex market.
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Spot exchange rate: Spot rates are the rates at which different currenciesare traded for immediate exchange.
Forward exchange rate: This is the rate at which foreign currency dealersare willing to commit to buying or selling a currency in the future. Thisgives information about the view of market participants on whether thecurrency appreciates or depreciates in future.
Appreciation: The rise in the value of one currency relative to another iscalled appreciation. When the currency of your country appreciates relativeto another country, your countrys goods prices rise abroad and foreigngoods prices decline in your country. This will benefit domestic consumerswho buy foreign goods, but makes domestic businesses less competitive.
Depreciation: A decline in the value of one currency relative to another iscalled depreciation. When the currency of your country depreciates relativeto another country, your countrys goods prices decline abroad and foreigngoods prices rise in your country. This will benefit domestic businesses, butwill affect domestic consumers who buy foreign goods.
The market exchange rate between two currencies is determined by theinteraction of the official and private participants in the foreign exchangerate market. The official participants include the central banks and othermonetary agencies of the government. The private participants include
banks, other financial institutions, corporate and individuals.
An important concept that drives the forces of supply and demand in the FXmarket is the Law of One Price. It says that the price of an identical goodwill be the same throughout the world, regardless of which country producesit. Based on this, we can determine the exchange rate between currencies.For example, if the price of steel produced in the U.S. is $100 per ton andsteel produced in India is Rs. 5,000 per ton, the exchange rate betweendollar and rupee would be Rs.50/$1.
The factors affecting the exchange rates in the long run include relative pricelevels in each country, preferences for domestic vs. foreign goods,
productivity and government controls. The buying and selling of currencyby the policy makers to control the supply and demand in the FX marketinfluence exchange rates in countries like India.
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FX market in India
As in the rest of the world, in India too, foreign exchange market is thelargest financial market in existence. The phenomenon that has dramaticallychanged Indias foreign exchange market was liberalization of economy
started during early 90s. In 1993, central government replaced theprevailing fixed exchange rate system with a less regulated market drivenarrangement. Even though this cannot be called as a fully floating exchangerate system like the U.S., in the Indian scenario it is working well. In thecurrent system, the Reserve Bank of India and its affiliates intervene in themarket whenever they decide it is necessary.
The major participants in Indian FX market are the buyers, sellers, marketmediators and the authorities. Besides the countrys commercial capitalMumbai, centers for foreign exchange transactions in India include Kolkata,
New Delhi, Chennai, Bangalore, Pondicherry and Cochin.
The FX market in India is regulated by The Foreign Exchange ManagementAct, 1999 or FEMA, which replaced the old Foreign Exchange RegulationAct, 1947. Now, the regulators have introduced several innovations to
promote the growth of FX market in India. The introduction of currencyfutures in India in 2009 was such as step. This has given the FX market
participants in India a new kind of financial instrument, which is available indeveloped markets.
Although no one expects the transformation of India to a fully market drivenfloating foreign exchange system any time soon, there are many possibilitiesfor further loosening of controls. The permission for the introduction of newFX derivatives following the path of currency futures is also expected.
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HOW CURRENCIES ARE TRADED?
The Foreign exchange market is a nonstop cash market where currencies ofnations are traded, typically viabrokers. Foreign currencies are constantly
and simultaneously bought and sold across local and global markets andtraders' investments increase or decrease in value based upon currencymovements. Foreign exchange market conditions can change at any time inresponse to real-time events.
The participants in the currency exchange markets have traditionally beenthe central and commercial banks, corporations, institutional investors, andhedge funds managers. In 2002, Bank of America alone made a $530Million profit in Forex trading as stated on their annual statement under"Global Investment Income". In 1986, Caterpillar made a 100 Million profit
in Forex trading and would have actually had an operating loss for the yearon their normal business if it were not for that profit from Forex. In 2003,half of Daimler Chryslers 2Q operating profit was from currency trades,making more money on foreign exchange than by selling cars.
Due to its popularity and the potential for very lucrative returns oninvestment, many private investors have also migrated into this fast growingarena. Some of the major reasons why private investors are attracted tocurrency exchange market and short-term Forex trading are:
* The Forex market is open for business around the clock. Nonstop 24hours a-day 7 days a-week access to global Forex dealers is at the disposalof the trader.
* The Forex market is the biggest market in the world. It is an enormousliquid market, with a daily turnover of more than 2.5 trillion dollars, makingit easy to trade most currencies around the clock.
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* The Forex markets can be very volatile due to the interdependencies of theworld economy on current events. As such, the Forex market offersopportunities for huge profit potentials that are derived from volatilities ofworld currency prices.
* The Forex Market contains inherent standard instruments for controllingrisk exposure.
* An investor has the ability to profit in both a rising and falling market.
* The investor can maintain leveraged trading with relatively low marginrequirements.
* The Forex trader has many options for zero commission trading.
Just like in any other market, the goal of the investor in Forex trading is tomake profits from price movements. In Forex trading, an investor makesmoney by trading foreign currencies and the trading is always done incurrency pairs. For example, the exchange rate of EUR/USD on Jan 15th,2004 was 1.0757. This number is also referred to as a "Forex rate" or just"rate" for short. If the investor had bought 1000 Euros on that date, he wouldhave paid 1075.70 U.S. dollars. One year later, the Forex rate was 1.2083,which means that the value of the euro (the numerator of the EUR/USDratio) increased in relation to the U.S. dollar. The investor could now sell the
1000 Euros in order to receive 1208.30 dollars. Therefore, the investorwould have USD 122.90 more than what he had started one year earlier.However, to know if the investor made a good investment, one needs tocompare this investment option to alternative investments. At the veryminimum, the return on investment (ROI) should be compared to the returnon a "risk-free" investment. One example of a risk- free investment is long-term U.S. government bonds since there is practically no chance for adefault, i.e. the U.S. government going bankrupt or being unable orunwilling to pay its debt obligation.
The whole premise behind trading currencies is that, the investor trades onlywhen he expects the currency that he is buying to increase in value relativeto the currency he is selling. If the currency he is buying does increase invalue, he must sell back the other currency in order to lock in a profit. Anopen position is a trade in which a trader has bought or sold a particularcurrency pair and has not yet sold or bought back the equivalent amount to
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close the position. However, it is estimated that anywhere from 70%-90%of the FX market is speculative. In other words, the person or institution that
bought or sold the currency has no plan to actually take delivery of thecurrency in the end; rather, they were solely speculating on the movement of
that particular currency. Most of the remaining percentage of the forexmarket belongs to hedging (managing business exposures to variouscurrencies) and other activities. Forex trades (trading onboard internet
platforms) are non-delivery trades, i.e., currencies are not physically traded,but rather there are currency contracts which are agreed upon andperformed. Both parties to such contracts (the trader and the tradingplatform) undertake to fulfill their obligations: one side undertakes to sellthe amount specified, and the other undertakes to buy it. As mentioned,over 70% of the market activity is for speculative purposes, so there is nointention on either side to actually perform the contract (i.e., the physical
delivery of the currencies). Thus, the contract ends by offsetting it againstan opposite position, resulting in the profit and loss of the parties involved.An example of a trading platform is the Easy-Forex Trading Platform. Afree video lesson in trading the forex market using Market Club chartinganalysis can be downloaded from the ino.com website.
Spreads
Spreads are the difference between Buy and Sell ( or BID and ASK). Inother words, this is the difference between the market maker's selling price
(to its clients) and the price the market maker buys it from its clients. If aninvestor buys a currency and immediately sells it ( and thus there is nochange in the rate of exchange), the investor will lose money. The reason forthis is the spread. At any given moment, the amount that will be received inthe counter currency when selling a unit of base currency will be lower thanthe amount of counter currency which is required to purchase a unit of basecurrency. For example, the EUR/USD bid/ask currency rates at your bankmay be 1.2015/1.3015, representing a spread of 1000 pips (percentage in
points; one pip=.0001). Such a rate is much higher that the bid/ask currency
rates that online Forex investors commonly encounter, such as1.2015/1.2020, with a spread of 5 pips. In General, smaller spreads are
better for Forex investors since they require a smaller movement inexchange rates in order to profit from a trade.
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Price, Quotes and Indications
The price of a currency (in terms of the counter currency), is called "Quote".There are two kinds of quotes in the Forex market:
The Direct Quote: the price for 1 US dollar in terms of the other currency,e.g. - Japanese Yen, Canadian dollar, etc.
The Indirect Quote: the price of 1 unit of a currency in terms of US dollars,e.g. - British pound, euro.
The market maker provides the investor with a quote. The quote is the pricethe market maker will honor when the deal is executed. This is unlike an"indication" by the market maker, which informs the trader about the market
price level, but is not the final rate for a deal.
Cross rates - any quote which is not against the US dollar is called "cross".For instance, GBP/JPY is a cross rate, since it is calculated via the USdollar. Here is how the GBP/JPY rate is calculated:
GBP/USD = 1.7464
USD/JPY = 112.29
Therefore: GBP/JPY = 112.29 X 1.7464 = 196.10
The Exchange Rate
Because currencies are traded in pairs and exchanged one against the otherwhen traded, the rate at which they are exchanged is called the exchangerate. The majority of the currencies are traded against the US dollar (USD).The four next-most traded currencies are the euro (EUR), the Japanese yen(JPY), the British pound sterling (GBP) and the Swiss franc (CHF). Thesefive currencies make up the majority of the market and are called the major
currencies or "the Majors". Some sources also include the Australian dollar(AUD) within the group of major currencies.
The first currency in the exchange pair is referred to as the base currencyand the second currency as the counter or quote currency. The counter orquote currency is thus the numerator in the ratio, and the base currency isthe denominator. The value of the base currency (denominator) is always 1.
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Therefore, the exchange rate tells a buyer how much of the counter or quotecurrency must be paid to obtain one unit of the base currency. The exchangerate also tells a seller how much is received in the counter or quote currencywhen selling one unit of the base currency. For example, an exchange rate
for EUR/USD of 1.2083 specifies to the buyer of Euros that 1.2083 USDmust be paid to obtain 1 euro.
At any given point, time and place, if an investor buys any currency andimmediately sells it - and no change in the exchange rate has occurred - theinvestor will lose money. The reason for this is that the bid price, whichrepresents how much will be received in the counter or quote currency whenselling one unit of the base currency, is always lower than the ask price,which represents how much must be paid in the counter or quote currencywhen buying one unit of the base currency. For instance, the EUR/USD
bid/ask currency rates at your bank may be 1.2015/1.3015, representing aspread of 1000 pips (also called points, one pip = 0.0001), which is veryhigh in comparison to the bid/ask currency rates that online Forex investorscommonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. Ingeneral, smaller spreads are better for Forex investors since even theyrequire a smaller movement in exchange rates in order to profit from a trade.
Margin
Banks and/or online trading providers need collateral to ensure that theinvestor can pay in case of a loss. The collateral is called the margin and isalso known as minimum security in Forex markets. In practice, it is adeposit to the trader's account that is intended to cover any currency tradinglosses in the future. Margin enables private investors to trade in markets thathave high minimum units of trading by allowing traders to hold a muchlarger position than their account value. Margin trading also enhances therate of profit, but has the tendency to inflate rates of loss, on top of systemicrisk.
Leveraged Financing
The ratio of investment to actual value is called "leverage". Leveragedfinancing, i.e., the use of credit, such as a trade purchased on a margin, isvery common in Forex. Using a $1000 to buy a Forex contract with a$100,000 value is "leveraging" at a 1:100 ratio. The invested amount of
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$1000 is all that is under risk in order to achieve the gain of $100,000. Theloan/leveraged in the margined account is collateralized by an investor'sinitial deposit. As a result, this may result in being able to control $100,000for as little as $1,000.
Five ways private investors can trade in Forex directly or indirectly:
* The spot market
* Forwards and futures
* Options
* Contracts for difference
* Spread betting
Spot transaction
A spot transaction is a direct exchange of one currency for another. The spotrate is the current market price, otherwise known as the benchmark price.Spot transactions do not require immediate settlement, or on-the-spot
payment. The settlement date, or "value date," is the second business day
after the "deal date" (or "trade date") on which the transaction is agreed toby the two traders. The two-day period provides time to confirm theagreement and arrange the clearing and necessary debiting and crediting of
bank accounts in various international locations.
Risks
Although Forex trading can lead to very profitable results, there are risksinvolved: exchange rate risks, interest rate risks, credit risks, and countryrisks. About 80% of all currency transactions last a period of seven days orless, and over 40% of forex trades will last no more than two days. Giventhe extremely short lifespan of the typical trade, technical indicators heavilyinfluence entry, exit and order placement decisions.
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FOREIGN EXCHANGE CHARTS:
Here we have used only simple moving average study. The three linesof MV are used which are:5days,21days &50days. We have to consider twolines for making the decision regarding buying or selling of currency.Whenever the two lines cross it gives buying/selling signal. There arevarious charts of foreign exchange trading which are given below:
EUR/USD:
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JPY/INR:
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GBP/INR:
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CONCLUSION
In this study I have examined the ability of technical rules namely, the bulland double bottom pattern, to increase the probability of winning in theforeign exchange market relative to the theoretical probability. The latterwas computed on the basis of efficient hypothesis, implying among otherthings, that foreign exchange rate follow a simple random walk.
In the course of my analysis I tested five strategies for the worlds eight
major currencies pair on the data set covering thirty days, which allow me toformulate two stylized fact that simultaneously demonstrate the technicalanalysis potential for profitability, and the difficulty of its practicalapplication.
The bull and the double bottom technical analysis rule increase on averagethe probability of winning compared to what is stipulated by the efficientmarket hypothesis.
It is hardly possible to indicate strategy in terms of trading rule and a
combination of stop loss and stop limit values, which would consistentlyresult in positive profits in the case of all currency pairs.
The two stylized fact above help explain the persistent popularity oftechnical analysis rules among popular traders on one hand and the lack ofsure fire trading strategies on the other hand. Indeed while technicalanalysis appears to be increasing the probability of winning, the lack ofsystematic pattern in the winning strategies parameters and underlyingtechnical trading rules makes it difficult, if not possible, to use technicalanalysis for reaping consistent positive returns.
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BIBLIOGRAPHY
WEBSITES:
www.spancaplease.com
www.tradersedge.com
www.sebi.gov.in
www.yahoofinance.com
www.nseindia.com
www.bseindia.com
http://www.tradersedge.com/http://www.sebi.gov.in/http://www.yahoofinance.com/http://www.nseindia.com/http://www.bseindia.com/http://www.tradersedge.com/http://www.sebi.gov.in/http://www.yahoofinance.com/http://www.nseindia.com/http://www.bseindia.com/