Forex College Report (Final)

Technical Analysis on FOREX Market 2013
TECHNICAL ANALYSIS OF FOREX MARKETS

A PROJECT REPORT
Submitted by
PRIETY SINGHANIA
In partial fulfillment for the award of the degree
of
BACHELOR IN COMMERCE (HONOURS)
GOENKA COLLEGE OF COMMERCE AND BUSINESS

ADMINISTRATION
UNDER UNIVERSITY OF CALCUTTA
2014
ROLL NUMBER: 106
Page 1
TABLES OF CONTENTS
LIST OF CHARTS-1............................................................................................4
LIST OF CHARTS-2..........................................................................................6
1. INTRODUCTION..........................................................................................7
1.1 ABSTRACT.....................................................................................................................7
1.2 OBJECTIVE OF THE STUDY.......................................................................................7
1.3 SCOPE OF THE RESEARCH.........................................................................................8
1.4 PURPOSE OF THE STUDY...........................................................................................8
1.5 RESEARCH METHODOLOGY.....................................................................................8
1.6 SAMPLING METHOD...................................................................................................9
2. ABOUT FOREX MARKET........................................................................10
2.1 SCOPE OF FOREX MARKETS...................................................................................10
2.2 IMPLEMENTATION OF FOREX MARKETS.............................................................11
2.3 TRADING CHARACTERISTICS IN FOREX MARKET...........................................11
2.4 MOST TRADED CURRENCIES..................................................................................12
2.5FINANCIAL INSTRUMENTS IN FOREX MARKET.................................................13
2.5.1 SPOT.......................................................................................................................13
2.5.2 FORWARD.............................................................................................................13
2.5.3 FUTURE.................................................................................................................13
2.5.4 SWAP......................................................................................................................14
2.5.5 OPTION..................................................................................................................14
2.6 FUTURE OF FOREX MARKETS................................................................................14
2.7 THE TEN RULES FOR FOREX TRADING................................................................14
2.7.1 DO’S.......................................................................................................................14
2.7.2 DON’Ts...................................................................................................................15
2.8 ABOUT FINANCE:.......................................................................................................15
3. TECHNICAL ANALYSIS:..........................................................................16
3.1 TECHNICAL ANALYSIS IN CONTRAST WITH FUNDAMENTAL ANALYSIS. . .17
3.2 WHY WE USE TECHNICAL ANALYSIS?.................................................................17
3.3 SOME OF THE IMPORTANT TERMS USED IN TECHNICAL ANALYSIS............18
3.3.1 SUPPORT:...............................................................................................................18
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3.3.2 RESISTANCE:........................................................................................................18
3.3.3 ROLE REVERSAL:................................................................................................19
3.4 TRENDS........................................................................................................................23
3.5 ELLIOT WAVES THEORY BASICS............................................................................25
3.6 CHART PATTERNS......................................................................................................26
3.7 TYPES OF CHARTS.....................................................................................................37
3.8 DIFFERENCE BETWEEN FUNDAMENTAL AND TECHNICAL ANALYSIS.......44
3.9 GENERAL STEPS TO TECHNICAL EVALUATION.................................................45
4. OPERATIONAL DEFINITIONS................................................................46
4.1 OVERALL TREND:......................................................................................................46
4.2 SUPPORT:......................................................................................................................46
4.3 RESISTANCE:...............................................................................................................46
4.4 BUYING/SELLING PRESSURE:.................................................................................46
4.5 RELATIVE STRENGTH:..............................................................................................46
5. ABOUT THE CURRENCIES......................................................................47
5.1 AUSTRALIA: AUSTRALIAN DOLLAR (AUD/USD)..............................................47
5.2 EUROPE: EURO (EUR/USD)......................................................................................47
5.3 UNITED KINGDOM: POUND STERLING (GBP/USD)............................................48
5.4 UNITED STATES: UNITED STATES DOLLAR (USD/JPY).....................................48
6. ANALYSIS AND INTERPRETATION......................................................49
6.1 MOVING AVERAGE-...................................................................................................49
6.2 RELATIVE STRENGTH INDEX:................................................................................50
7. SUMMARY...................................................................................................66
8. FINDINGS.....................................................................................................67
9. CONCLUSION.............................................................................................68
10. BIBLIOGRAPHY.........................................................................................69
LIST OF CHARTS-1
Page 3
SL. NO DESCRIPTION PAGE NO

SOURCE FOR LIST
1 SUPPORT LEVEL 26
OF CHARTS 1:
2 RESISTANCE LEVEL 27
 7 Winning
3 ROLE REVERSAL 27 Strategies for
4 PRIMARY TRENDS 28 Trading
FOREX By
5 RANGING MARKETS 30
Grace Cheng
6 BULL TREND 31
 GCI MT4 Demo
A/c 7 LARGE CORRECTIONS 32 FOREX
8 ELLIOT WAVES:TREADLINES 33 Trading
SOURCE 9 DOUBLE TOP (REVERSAL) 37 FOR LIST

OF CHARTS 10 DOUBLE BOTTOM 38 2:
 GCI 11 HEAD AND SHOULDERS 39 MT4 Demo

A/c FOREX
12 TRIPLE TOP 40
Trading
13 TRIPLE BOTTOM 41
14 FLAGS AND PENNANTS 42
LIST 15 SYMMETRICAL TRIANGLE 43
OF
16 ASCENDING TRIANGLE 44
17 DESCENDING TRIANGLE 45
18 ROUNDING BOTTOM CUP 46
AND HANDLE PATTERN
19 BAR CHART 48
20 CANDLESTICK CHART 49
21 LINE CHART 51
CHARTS-2
SL. TITLE PAGE
NO NO
22 RSI And Moving Average of AUD/USD: February2010 52
23 RSI And Moving Average of AUD/USD: March2010 53
24 RSI And Moving Average of AUD/USD: February2010 54
Page 4
25 RSI And Moving Average of EUR/USD: January2010 55
26 RSI And Moving Average of EUR/USD: February2010 56
27 RSI And Moving Average of EUR/USD: March2010 57
28 RSI And Moving Average of GBP/USD: January2010 58
29 RSI And Moving Average of GBP/USD: February2010 59
30 RSI And Moving Average of GBP/USD: March2010 60
31 RSI And Moving Average of USD/JPY: January2010 61
32 RSI And Moving Average of USD/JPY: February2010 62
33 RSI And Moving Average of USD/JPY: March2010 63
CHAPTER 1
INTRODUCTION
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1.1 ABSTRACT
The foreign exchange market is a worldwide decentralized over-the-counter trading financial

market for trading of currencies. It contains Analysis and Interpretation of 4 currencies
Australian dollar, Euro, Pound Sterling, United States Dollar for the month of January,
February, and March 2010 is done to generate buy/sell signal for that particular month for
investor, speculator using technical indicators such as RSI, Moving Average.
This project is all about how to generate buy/sell signals using past Prices and Volume and
also Technical Indicators such as Relative Strength Index and Moving Average. It’s very
important for an investor, speculator to know When to Enter and When to Exit. So technical
analysis help them to analyze the movements of currencies and using past data and technical
indicators buy and sell signals for future is generated.
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The Recommendations that can be given is Investors should not only depend on technical
analysis they should at the same time do fundamental analysis so as to analyze the economy
all over the world to remove the risk and earn higher profits.
1.2 OBJECTIVE OF THE STUDY
 To understand the importance of Technical Analysis in the speculation activities.

 It provides different tools to the investors to determine the buying and selling point.
 To study the market movement through the RSI & Moving Average. These two are
very easy to understand and to predict the FOREX market.
 To examine how the speculator uses tools to minimize risk.
 To understand the means through which the speculator uses the both technical
analysis and fundamental analysis.
 To offer the reasonable suggestions based on the analysis of data.
1.3 SCOPE OF THE RESEARCH
The tool technical analysis is universally applicable. There is no geographical restriction for
the technical analysis. But the tools used may be different from analyst to analyst. Some
analyst may use RSI or other may use Moving Average or other tools which they feel is
relevant to predict the future market. The commonly used techniques are RSI, Moving
Average, and Exponential Moving Average. Technical Analysis helps the investors,
speculators to generate buy/sell signals using past prices, volumes, and Technical Indicators
such as RSI and Moving Average.
1.4 PURPOSE OF THE STUDY
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In present day highly volatile market, an investor/trader does not seem to have any source for
decision making other than and publicly availably data. It is really difficult to predict the
market movements. A speculator uses almost all-possible tools to achieve his objective i.e. to
buy at a lower quote and sell at a higher quote to maximize the profit and minimize the risk.
But still it is proved that no one can predict the market perfectly. Considering this problem in
mind this research has tried to study the market using Relative Strength Index (RSI) and
Moving Average (MA)
RSI and the Moving Averages are the important tools used by traders to determine the future
behavior of the currency prices in FOREX Market. Hence these two tools help the trader to
trade efficiently to minimize the risk and to reduce the burden of losses to some extent.
1.5 RESEARCH METHODOLOGY
The data that is collected is mainly used by the secondary sources.
SECONDARY DATA: The secondary data includes information collected from the various
web sites, textbooks and newspapers for the purpose of scrip’s Price Volume Data and Theory
part of the project report.
1.6 SAMPLING METHOD
SAMPLING SIZE
This project considers 4 different Currencies to study the future changes in the prices by
using technical analysis tools of Moving Average &Relative Strength Index. Those places are
given below with the currencies.
Australia (Australian dollar) : AUD/USD
Europe (Euro) : EUR/USD
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United Kingdom (Pound sterling) : GBP/USD
United States (United States Dollar): USD/JPY
1.7 LIMITATIONS OF STUDY
1. The research is subject to a time span of three months.
2. Sometimes the signals will not work because of some fundamental news.
3. Only two technical tools are used.
4. There is no such rule that every investor and speculators should use only these two tools.
CHAPTER 2
ABOUT FOREX MARKET
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The foreign exchange market is a worldwide decentralized over-the-counter trading (is to

trade financial instruments such as stocks, bonds, commodities or derivatives directly
between the parties) financial market for trading of currencies.
Traders include large banks, central banks, currency speculators, corporations, governments,
and other financial institutions.
In a typical foreign exchange transaction a party purchases a quantity of one currency by

paying a quantity of another currency. Financial centers around the world function as anchors
of trading between a wide range of different types of buyers and sellers around the clock,
with the exception of weekends.
2.1 SCOPE OF FOREX MARKETS
The purpose of the foreign exchange market 'FOREX' is
 To assist international trade and investment and transfer purchasing power between
countries.
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 The foreign exchange market allows businesses to convert one currency to another
foreign currency. For example, it permits a U.S. business to import European goods
and pay Euros, even though the business's income is in U.S. dollars.
 The foreign exchange market is the largest and most liquid financial market in the
world
 The foreign exchange market performs the hedging function covering the risks on
foreign exchange transactions. There are frequent fluctuations in exchange rates. If
the rate is favorable, the exporter will gain and vice versa. In order to avoid the risk
involved, the foreign exchange market provides hedges or actual claims through
forward contracts in exchange against such fluctuations. The agencies of foreign
currencies guarantee payment of foreign exchange at a fixed rate. The exchange
agencies bear the risks of fluctuation of exchange rates.
 When any tourist goes to any other country for any purpose he has to change his
currency with the currency of country where he needs the money for carrying
different functions. The exchange rate is the phenomena by which the currency of one
country is converted to the currency of another country. So the foreign exchange
market serves the country in many ways.
2.2 IMPLEMENTATION OF FOREX MARKETS
The modern foreign exchange market started forming during the 1970s when countries
gradually switched to floating exchange rates from the previous exchange rate regime, which
remained fixed as per the Bretton Woods system.
2.3 TRADING CHARACTERISTICS IN FOREX MARKET
The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all
important centers as well. Banks throughout the world participate. Currency trading happens
continuously throughout the day; as the Asian trading session ends, the European session
begins, followed by the North American session and then back to the Asian session,
excluding weekends.
Fluctuations in exchange rates are usually caused by actual monetary flows as well as by
expectations of changes in monetary flows caused by changes in gross domestic
product (GDP) growth, inflation (purchasing power parity theory), interest rates and other
Page 11
macroeconomic conditions. Major news is released publicly, often on scheduled dates; so

many people have access to the same news at the same time.
Currencies are traded against one another. Each currency pair thus constitutes an individual
trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are
the ISO 4217 international three-letter code of the currencies involved. The first currency
(XXX) is the base currency that is quoted relative to the second currency (YYY), called
the counter currency (or quote currency). For instance, the quotation EURUSD (EUR/USD)
1.5465 is the price of the euro expressed in US dollars, meaning 1 euro = 1.5465 dollars.
Historically, the base currency was the stronger currency at the creation of the pair.
2.4 MOST TRADED CURRENCIES
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RANK CURRENCY SYMBOL
1 United States dollar USD ($)
2 Euro EUR (€)
3 Japanese yen JPY (¥)
4 Pound sterling GBP (£)
5 Swiss franc CHF (Fr)
6 Australian dollar AUD ($)
7 Canadian dollar CAD ($)
8 Swedish krona SEK (kr)
9 Hong Kong dollar HKD ($)
10 Norwegian krone NOK (kr)
11 New Zealand dollar NZD ($)
12 Mexican peso MXN ($)
13 Singapore dollar SGD ($)
14 South Korean won KRW (₩)
2.5FINANCIAL INSTRUMENTS IN FOREX MARKET
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2.5.1 SPOT
A spot transaction is a two-day delivery transaction (except in the case of trades between the
US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which settle the next business
day), as opposed to the futures contracts, which are usually three months.
This trade represents a “direct exchange” between two currencies, has the shortest time
frame, involves cash rather than a contract; and interest is not included in the agreed-upon
transaction. The data for this study come from the spot market. Spot transactions have the
second largest turnover by volume after Swap transactions among all FX transactions in the
Global FX market.
2.5.2 FORWARD
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this
transaction, money does not actually change hands until some agreed upon future date. A
buyer and seller agree on an exchange rate for any date in the future, and the transaction
occurs on that date, regardless of what the market rates are then.
The duration of the trade can be a one day, a few days, months or years. Usually the date is
decided by both parties.
2.5.3 FUTURE
Foreign currency futures are exchange traded forward transactions with standard contract
sizes and maturity dates — for example, $1000 for next November at an agreed rate.
Futures are standardized and are usually traded on an exchange created for this purpose. The
average contract length is roughly 3 months. Futures contracts are usually inclusive of any
interest amounts.
2.5.4 SWAP
The most common type of forward transaction is the currency swap. In a swap, two parties
exchange currencies for a certain length of time and agree to reverse the transaction at a later
date. These are not standardized contracts and are not traded through an exchange.
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2.5.5 OPTION
A foreign exchange option (commonly shortened to just FX option) is a derivative where the
owner has the right but not the obligation to exchange money denominated in one currency
into another currency at a pre-agreed exchange rate on a specified date. The FX options
market is the deepest, largest and most liquid
market for options of any kind in the world.
2.6 FUTURE OF FOREX MARKETS
The market has grown more than 30 percent over the past three years.
 Developments in the foreign exchange markets including the spot market, the
forwards market and foreign exchange options and derivatives market
 Trading Technology - in particular the development of electronic matching systems
and their new dominance of trading in the market
 Netting and Settlement the Future of the Foreign Exchange Markets discusses the new
foreign exchange clearing bank, the CLSS and considers its implications for the future
structure of the global foreign exchange market, specifically the reduction of
settlement risk.
2.7 THE TEN RULES FOR FOREX TRADING
2.7.1 DO’S
1. When trying out a new trading strategy, always test it in a demo account, or with a
small amount of money, before you commit more money to it.
2. Always keep a record of each of your trades, with details of: why you got in, how
you got out and why it turned out the way it did.
3. Have a personalized trading plan and update it as you learn from the market.
4. If you are unsure of a trade, stay out. It is better to miss an opportunity than to
have a loss.
5. When trading, keep up-to-date with both the fundamentals and technical affecting
the market. A trader in the dark is a trader in the red.
2.7.2 DON’Ts
Page 15
1. Don’t trade with money, you can’t afford to lose. It will affect you emotionally,
and you will most likely lose it to irrational trading.
2. Don’t follow someone else’s trading advice blindly. Always know why you are
getting into a trade, and how you are going to get out of it.
3. Don’t be concerned about being right, just be concerned about being profitable.
4. Don’t over-leverage. Chances are that your account will be decimated before you
can recoup your losses and go into profit.
5. Doesn’t revenge- trade the market. Vent your frustrations elsewhere after a loss.
2.8 ABOUT FINANCE:
FINANCE is the lifeblood and nerve system of any business organization. Just as circulation
of blood is necessary in human body to maintain life, finance is very essential to maintain
life, finance very essential to the business organization for smooth functioning of the
business.
Financial management involves managerial activities concerned with the acquisition of fund
for business purpose. The finance function does with procurement of money taking into
consideration today as well as future needs and finance is required to purchase a machinery
and raw materials, to pay salaries and wages and also for day –to –day expenses.
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3. TECHNICAL ANALYSIS:
It is the method of evaluating currencies by analyzing statistics generated by market activity,
such as past prices and volume. Technical analyst does not attempt to measure a currencies
intrinsic value, but instead use charts to identify patterns that can suggest future activity.
Technical analysis has become increasingly popular over the past several years, as more and
more people believe that the historical performance of the currency is a strong indication of
future performance. People using fundamental analysis have always looked at the country’s
GDP growth rate, inflation rate, state of capital markets, and exchange rate between two
countries. The defense lies in the technical analyst’s beliefs that currencies move according to
very predictable trends and patterns. These trends continue until something happens to
change the trend, and until this change occurs, price levels are predictable.
TECHNICAL ANALYSIS
 Identification of the current trend i.e. the direction of price movement and spotting
any trend reversal as early as possible.
 Historical price and volume data analyzed with the help of charts.
 For currencies, shares and commodities traded on exchanges, such data is usually
available but in case of interbank currency market, volume data is not available and
the analyst makes use of different indicators, which are derived from the price data.
Many of these indicators have become so popular that they are used extensively even
for financial assets and instruments traded on exchanges.
 Applicable only when prices fluctuate freely in response to market forces of demand
and supply for the underlying assets. Obviously not applicable for say a pegged
exchange rate like USD/HKD. Our focus will be on floating exchange rates through
the principles of technical analysis apply to other assets such as commodities, stock
market indices, certain heavily traded stocks, etc.
 More reliable in case of broad and very liquid markets than thin and shallow markets.
Help to judge the emotional state of the market. The market has its own collective
distinct consciousness distinct from the individual consciousness of the participants.
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3.1 TECHNICAL ANALYSIS IN CONTRAST WITH FUNDAMENTAL

ANALYSIS
 Fundamental analysis is concerned with all the fundamental factors. In the case of the
exchange rate, the concerned factors are present and expected interest rates, inflation
rates, GDP growth rates, international trade and current account balance, exchange
rate policies of the two countries in question, state of capital markets, etc. After
analysis of all these factors, the fundamental analyst attempts to ascertain whether a
currency is undervalued or overvalued and consequently whether it is likely to
appreciate or depreciate.
 Technical analysis on the other hand, assumes that the price at the given time is the
result of not only the fundamental factors but also markets collective response to all
the factors. At the extreme, technical analysts don’t even want to read newspapers lest
the popular news bias their chart analysis.
Often economists focus on certain fundamentals and ‘prescribe’ how the market ought
to behave when the market behavior is linked to some factors. A classic example is the
Euros persistent decline since its launch. The market is labeled as crazy when it
doesn’t behave in the prescribed manner. However, those who are exposed to risk
can’t afford to go against the market even if they think it is crazy. Hence, the
importance of technical analysis is proper understanding of market psychology.
3.2 WHY WE USE TECHNICAL ANALYSIS?
 Technical analysis provides information on the best entry and exit points for a trade.
 On the chart, the trader can see where momentum is rising, a trend is forming, a price
is dipping or other events are developing that show the best entry point and time for
the most profitable trade. With the constant movement of various currencies against
each other in the Forex Market, most traders will focus on using technical indicators
to find and place their trades.
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3.3 SOME OF THE IMPORTANT TERMS USED IN TECHNICAL

ANALYSIS
3.3.1 SUPPORT: Support is a level at which bulls (buyers) take control over the prices and
prevent them from falling lower.
SUPPORT LEVEL
Support
SOURCE: 7Winning Strategies for Trading Forex by Grace Cheng
3.3.2 RESISTANCE: Resistance is the point at which sellers (bears) take control of prices
and prevent them from rising higher. The price at which a trade takes place is the price at
which a bull and bear agree to do business. It represents the consensus of their expectations.
RESISTANCE LEVEL
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Resistance
Support level indicates the price where the most of investors believe that prices will move
higher. Resistance level indicates the price at which the most of the investors feel prices will
move lower.
3.3.3 ROLE REVERSAL: When a resistance level is successfully broken through, that
level becomes a support level. Similarly, when a support level is successfully broke through,
that level becomes a resistance level.
Support
Becomes Resistance
Once penetrated the support level may

act as a resistance level. Stockholders who bought at the support level will be inclined to sell when price rallies
back to that level, to recover their losses
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4 DOW THEORY –TRENDS:
The ideas of Charles Dow, the first editor of the wall street journal, form the basis of
technical analysis. The Dow Theory is a method of interpreting and signaling changes in the
Forex market direction based on the monitoring of the Dow Jones Industrial and
Transportation Averages. He believed that the behavior of the averages reflected the hopes
and fears of the entire market. The behavior patterns that he observed apply to markets
throughout the world.
THREE MOVEMENTS
Markets fluctuate in more than one time frame at the same time:
Nothing is more certain than that the market has three well defined movements which fit into
each other.
 The first is the daily variation to local causes and the balance of buying and selling at
that particular time.
 The secondary movement covers a period ranging from ten days to sixty days,
averaging probably between thirty and forty days.
 The third move is the great swing covering from four to six years.
PRIMARY TRENDS
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 Bull markets are broad upward movements of the market that may last several years,
interrupted by secondary reactions. Bear markets are long declines interrupted by
secondary rallies. These movements are referred to as primary trends.
 Secondary movements normally retrace from one third to two thirds of the primary
trend since the previous secondary movement.
 Daily fluctuations are important for short-term trading, but are unimportant in analysis
of broad market movements.
Various cycles have subsequently been identified within these broad categories
PRIMARY MOVEMENTS HAVE THREE PHASES
The general conditions in the market:
BULL MARKETS:
 Bull markets commence with reviving confidence as business conditions improve

 Prices rise as the market responds to improved earnings.
 Rampant speculation dominates the market and price advances are based on hopes
and expectations rather than actual results.
BEAR MARKETS:
 Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices.
 Prices decline in response to disappointing earnings.
 Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value.
3.4 TRENDS
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BULL TREND:
A bull trend is identified by a series of rallies where each rally exceeds the highest point of
the previous rally. The decline, between rallies, ends above the lowest point of the previous
decline.
Successive higher highs and higher lows:
BULL TREND
HH= Higher High
HL= Higher Low
The start of an up trend is signaled when price makes a higher low (trough), followed by a
rally above the previous high (peak):
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Start= Higher low + Break above previous High
The end is signaled by a lower high (peak), followed by a decline below the previous low
(trough):
End = Lower high + Break below previous Low
LH
START OF BULL
TREND
END OF BULL
HL TREND
A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then
retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.
LARGE CORRECTIONS
A large correction occurs when price falls below the previous low (during the bull trend) or
where price rises above the previous high (in a bear trend)
Large corrections: Start and End of Trends
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 A bull trend starts when price rallies above the previous high.
 A bull trend ends when price declines below the previous low.
 A bear trend starts at the end of bull trend (and vice versa).
3.5 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of traders’ expectations

(which causes supply/demand lines to shift).
An uptrend is defined by successively higher low-prices. A rising trend can be thought of as a

rising support level: the bulls are in control and are pushing prices higher. A downtrend is
defined by successively lower high-prices. A falling trend can be thought of as a falling
resistance level: the bears are in control and are pushing prices lower.
MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools. A moving
average is the average price of a financial instrument over a given time.
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The moving average represents the consensus of investor’s expectations over the indicated
period of time.
The classic interpretation of a moving average is to use it in observing changes in prices.

Investors typically buy when the price of an instrument rises above its moving average and
sell when it falls below its moving average.
3.6 CHART PATTERNS
The vast majority of chart patterns fall into two main groups: reversal and continuation.
Reversal patterns indicate a change of trend and can be broken down into top and bottom
formations. Continuation patterns indicate a pause in trend and indicate that the previous
direction will resume after a period of time. Just because a pattern forms after a significant
advance or decline does not mean it is a reversal pattern. Many patterns, such as a rectangle,
can be classified as either reversal or continuation. Much depends on the previous price
action, volume and other indicators as the pattern evolves.
Below is a list of common chart patterns that can be useful in Technical Analysis.
 DOUBLE TOP (REVERSAL)

 DOUBLE BOTTOM (REVERSAL)
 HEAD AND SHOULDERS TOP(REVERSAL)
 HEAD AND SHOULDERS BOTTOM(REVERSAL)
 FALLING WEDGE (REVERSAL)
 RISING WEDGE (REVERSAL)
 ROUNDING BOTTOM (REVERSAL)
 TRIPLE TOP (REVERSAL)
 TRIPLE BOTTOM(REVERSAL)
 BUMP AND RUN (REVERSAL )
 FLAG, PENNANT (CONTINUATION)
 SYMMETRICAL TRIANGLE(CONTINUATION)
 ASCENDING TRIANGLE(CONTINUATION)
 DESCENDING TRIANGLE(CONTINUATION)
 RECTANGLE (CONTINUATION)
 PRICE CHANNEL(CONTINUATION)
 MEASURED MOVE –BULLISH (CONTINUATION)
 MEASURED MOVE- BEARISH (CONTINUATION)
 CUP WITH HANDLE(CONTINUATION
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DOUBLE TOP (REVERSAL):
The double top is a major reversal pattern that forms after an extended uptrend. As the name
implies, the pattern is made up of two consecutive peaks that are roughly equal, with a
moderate trough in between. The double top looks like the letter “M”.
Source: 7 Winning Strategies for Trading Forex by Grace Cheng
Although there can be variations, the classic double top marks at least an intermediate
change, if not long-term change, in trend from bullish to bearish. Many potential double tops
can form along the way up, but until key support is broken, a reversal cannot be confirmed.
DOUBLE BOTTOM (REVERSAL):
The double bottom is a major reversal pattern that forms after an extended downtrend. As the
name implies, the pattern is made up of two consecutive troughs that are roughly equal, with
a moderate peak in between. The double bottom looks like the letter “W”. The twice touched
low is considered a support level.
Most technical analysts believe that the advance off of the first bottom should be 10-20%.
The second bottom should form within 3-4% of the previous low, and volume on the ensuring
advance should increase.
Page 27
Source: 7 Winning Strategies for Trading Forex BY Grace Cheng
Although there can be variations, the classic double bottom usually marks an intermediate or
long-term change in trend. Many potential double bottoms can form along the way down, but
until key resistance is broken, a reversal cannot be confirmed.
HEAD AND SHOULDER TOP (REVERSAL):
A head and shoulders reversal pattern forms after an uptrend, and its completion marks a
trend reversal. The pattern contains three successive peaks with the middle peak (head) being
the highest and the two outside peaks (shoulders) being low and roughly equal. The reaction
lows of each peak can be connected to form support, or a neckline.
As its name implies, the head and shoulders reversal pattern is made up of a left shoulder, a
head, a right shoulder, and a neckline. Other parts playing a role in the pattern are volume, the
breakout, price target and support turned resistance.
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VOLUME: As the Head and Shoulders pattern unfolds, volume plays an important role in
confirmation. Volume can be measured as an indicator (OBV, Chaikin Money Flow) or
simply analyzing volume levels. Ideally but not always, volume during the advance of the left
shoulder should be higher than during the advance of the head. This decrease in volume and
the new high of the head, together, serve as a warning sign. The next warning sign comes
when volume increases on the decline from the peak of the head. Final confirmation comes
when volume further increases during the decline of the right shoulder.
NECKLINE BREAK: The head and shoulders pattern is not complete and the uptrend is not
reversed until neckline support is broken. Ideally, this should also occur in a convincing
manner, with an expansion of volume.
HEAD AND SHOULDER BOTTOM (REVERSAL):
The head and shoulders bottom is referred to as an inverse head and shoulders. The pattern
shares many common characteristics with its comparable partner, but relies more heavily on
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volume patterns for confirmation. And is exactly opposite in direction of head and shoulders
top.
TRIPLE TOP:
The triple top is a reversal pattern made up of three equal highs followed by a break below
support. In contrast to the triple tops usually form over a shorter time frame and typically
range from 3 to 6 months. Bottoms take longer to form than tops.
Notice how the price forms three relatively equal peaks before signaling a sharp move lower
The first step in this pattern is the creation of a new high in an uptrend that is stalled by
selling pressure, which forms a level of resistance. The selling pressure causes the price to
fall until it finds a level of support, as buyers move back into the security. The buying
pressure sends the price back up to the area of resistance the security previously met. Again,
the sellers enter the market and send the security back down to the support level.
This up- and- down movement is repeated for the third time, but this time the buyers , after
failing three times, give up on the security, and the sellers take over. Upon falling through the
level of support, the security is expected to trend downward.
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TRIPLE BOTTOM:
The triple bottom is a reversal pattern made up of three equal lows followed by a breakout
above. While this pattern can form over a just few months, it is usually a long- term pattern
that covers many months. Because of its long- term nature, weekly charts can be best suited
for analysis.
This pattern begins by setting a new low in a downtrend, which is followed by a rally to a
high. After hitting the high, the price again comes under selling pressure, which sends it back
down to the previous low. Buyers again move back into the security at this support level,
sending the price back up again, usually to the previous high.
FLAGS AND PENNANTS:
Flags and pennants are short- term continuation patterns that mark a small consolidation
before the previous move resumes. These patterns are usually preceded by a sharp advance or
decline with heavy volume, and mark a mid- point of the move.
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While the construct of the pause in the trend is different for the flag and pennant, the
attributes of the chart patterns themselves are similar.
Typically, these patterns take less time to form during downtrends than in up trends. In the
terms of pattern length, they are generally short- term patterns lasting one to three weeks, but
can be formed over longer periods.
SYMMETRICAL TRIANGLE:
The symmetrical triangle is mainly considered to be a continuation pattern that signals a

period of consolidation in a trend followed by a resumption of the prior trend. It is formed by
the convergence of a descending resistance line and ascending support line. The two trend
lines in the formation of this triangle should have a similar slope converging at a point known
as the apex. The price of the security will bounce between these trend lines, towards the apex,
and typically breakout in the direction of the prior trend.
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If preceded by a downward trend, the focus should be on a break below the ascending support
line. If preceded by an upward trend, look for a break above the descending resistance line.
However, this pattern doesn’t always lead to a continuation of the previous.
ASCENDING TRIANGLE:
The ascending triangle is a bullish pattern, which gives an indication that the price of the
currency is headed higher upon completion. The pattern is formed by two trend lines a flat
trend line being a point of resistance and an ascending trend line acting as a price support.
The price of the currency moves between these trend lines until it eventually breaks out to the
upside. This pattern will typically be preceded by an upward trend, which makes it a
continuation pattern; however, it can be found during a downtrend.
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Traders will enter into a long

position on a break above the
DESCENDING TRIANGLE:
The descending triangle is the opposite of the ascending triangle in that it gives a bearish
signal to chartists, suggesting that the price will trend downward upon completion of the
pattern. The descending triangle is constructed with a flat support line and a downward-
sloping resistance line.
Similar to the ascending triangle, this pattern is generally considered to be a continuation

pattern, as it is preceded by a downward trend-line. But again, it can be found in an uptrend.
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ROUNDING BOTTOM/CUP AND HANDLE PATTERN:
The rounding bottom is a long-term reversal pattern that is best suited for weekly charts. It is
also referred to as a saucer bottom, and represents a long consolidation period that turns from
a bearish bias to a bullish bias.
Rounding bottoms are found at the end of extended downward trends and signify a reversal in
long-term price movements. This patterns time frame can vary from several weeks to several
months and is deemed by many traders as a rare occurrence.
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Rounding bottoms look similar to the cup and handle pattern, but does not experience the
temporary downward trend of the “handle” portion. The initial declining slope of a rounding
bottom indicates an excess of supply, which forces the stock price down. The transfer to an
upward trend occurs when buyers enter the market at low price, which increases demand for
the currency. Once the rounding bottom is complete, the currency breaks out and will
continue in its new upward trend.
3.7 TYPES OF CHARTS
A price chart is a sequence of prices plotted over a specified time frame. In statistical terms,
charts are referred to as time series plots.
On the chart, the y-axis (vertical axis) represents the price scale and the x-axis (horizontal
axis) represents the time scale. Prices are plotted from left to right across the x-axis with the
most recent plot being the furthest right.
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Technicians, technical analysts and chartists use variety of charts to analyze a wide array of
currencies and forecast future price movements. Some of the important charts are discussed
here.
BAR CHART:
Perhaps the most popular charting method is the bar chart the high, low and close is required
to form the price plot for each period of a bar chart. The high and low are represented by the
top and bottom of the vertical bar and the close is the short horizontal line crossing the
vertical bar. On a daily chart each bar represents the high, low and close for a particular day.
Weekly charts would have a bar for each week based on Friday’s close and the high and low
for that week.
BAR CHART (EUR/USD MAY 2010)
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Source: GCI MT4 Demo A/c Forex Trading
CANDLESTICK CHARTING:
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Originating in Japan over 300 years ago, candlestick charts have become quite popular in
recent years. For a candlestick chart, the open, high, low, and close are all required. A daily
candlestick is based on the open price, the intraday high and low, and the close. A weekly
candlestick is based on Monday’s open, the weekly high-low range and Friday’s close.
GBP/USD (MARCH 2010)
Many traders and investors believe that candlestick charts are easy to read, especially the
relationship between the open and the close. White (clear) candlesticks form when the close
is higher than the open and black (solid) candlesticks form when the close is lower than the
open. The white and black portion formed from the open and close is called the body (white
body or black body). The lines above and below are called shadows and represent the high
and low.
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This is known as “the hammer”, this is a bullish pattern only if it occurs after the stock price
has dropped for several days. A small body along with a large range identifies a hammer. This
pattern indicates that a reversal in the down trend is in the works.
This is known as a “star”. For the most part, stars typically indicate a reversal or indecision.
There is a possibility that after seeing a star there will be a reversal or change in the current
trend.
LINE CHART:
Line charts are not very clear so it’s difficult for the investors to predict the market as
compared to candlestick charts.
EUR/USD (MAY 2010)
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Dark green line indicates the movement of price of the currency in the market. The beauty of
line charts is their simplicity. Little or no price movement is deemed irrelevant and therefore
not duplicated on the chart. Only price movements that exceed specified levels are recorded.
This focus on price movement makes it easier to identify support and resistance levels,
bullish breakouts and bearish breakdowns.
WEDGE
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A technical chart pattern composed of two converging lines connecting a series of peaks and
troughs.
Falling wedges indicate temporary interruptions of upward price rallies. Rising wedges
indicate interruptions of a falling price trend. Technical analysts see a ‘breakout’ of this
wedge pattern as either bullish (on a breakout above the upper line) of bearish (on a breakout
below the lower line)
Investing in various types of assets is an interesting activity that attracts people from all
walks of life irrespective of their occupation, economic status, education and family
background. When a person has more money than he requires for current consumption, he
would be coined as a potential investor. The investor who is having extra cash could invest it
in currencies or in any other assets like gold or real estate or could simply deposit it in his
bank account. The companies that have extra income may like to invest their money in the
extension of the existing firm or undertake new venture. All of these activities in a broader
sense mean investment.
INVESTMENT
Financial investment is allocation of money to assets that are expected to yield some gain
over a period of time. They are expected to yield returns and experience capital growth over
the years.
This financial investment can be classified mainly into three types:
 Speculation
 Gambling
 Investment
Some of the important differences between the above 3 are given below:
Time horizon: Time taken by Gambling is shorter than Speculation and Investment and
speculation is more than the Gambling and less than Investment. Investment made usually for
long period.
Risk: Risk is comparatively high in gambling and speculation than the Investment.
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Market risk: Jack Clark Francis has defined market risk “is that portion of variability of
return caused by the alternative forces of bull and bear markets. When the security index
moves upward haltingly for a significant period of time, it is known as bull market. In bull
market the index moves from a low level to the peak. Bear market is just a reverse to the bull
market.
3.8 DIFFERENCE BETWEEN FUNDAMENTAL AND TECHNICAL

ANALYSIS
TECHNICAL ANALYSIS
It is a process of identifying trend reversal at an earlier stage to formulate the buying and
selling strategy. With the help of several indicators they analyze the relationship between
price- volume and supply-demand for the overall market and the individual currency.
The technical approach to invest is essentially a reflection of the idea that prices move in
trends which are determined by the changing attitudes of investors towards a variety of
economic, monetary, political and psychological forces. The art of technical analysis for-it is
an art to identify trend changes at an early stage and to maintain an investment posture until
the weight of the evidence indicates that the trend has been reversed.
Technical analysis is applicable to stocks, indices, commodities, futures, or any tradable

instrument where the price is influenced by the forces of supply and demand. Price refers to
any combination of the open, high, low or closes for a given security over a specific time
frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-
minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or
many years. In addition, some technical analysts include volume or open interest figures with
their study of price action.
3.9 GENERAL STEPS TO TECHNICAL EVALUATION
Many technicians employ a top-down approach that begins with broad- based macro analysis.
The larger parts are then broken down to base the final step on a more focused/micro
perspective. Such an analysis might involve three steps:
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The beauty of technical analysis lies in its versatility. Because the principles of technical
analysis are universally applicable, each of the analysis steps above can be performed using
the same theoretical background. You don’t need an economics degree to analyze a market
index chart. You don’t need to be a CPA to analyze a currency chart. Charts are charts. It does
not matter if the time frame is 2 days or 2 years. It does not matter if it is a stock, market
index or commodity. The technical principles of support, resistance, trend, trading range and
other aspects can be applied to any chart. While this may sound easy, technical analysis by no
means easy.
CHART ANALYSIS
Technical analysis can be as complex or as simple as you want it. The example below
represents a simplified version. Since we are interested in buying currency, the focus will be
on spotting bullish situations.
4. OPERATIONAL DEFINITIONS
4.1 OVERALL TREND: The first step is to identify the overall trend. This can be
accomplished with trend lines, moving averages or peak/trough analysis. As long as the price
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remains above its uptrend line, selected moving averages or previous lows, the trend will be
considered bullish.
4.2 SUPPORT: Areas of congestion or previous lows below the current price mark
support levels. A break below support would be considered bearish.
4.3 RESISTANCE: Areas of congestion and previous highs above the current price
mark the resistance levels. A break above resistance would be considered bullish.
4.4 BUYING/SELLING PRESSURE: For stocks and indices with volume

figures available, an indicator that uses volume is used to measure buying or selling pressure.
When Chaining Money Flow is above zero, buying pressure is dominant. Selling pressure is
dominant when it is below zero.
4.5 RELATIVE STRENGTH: The price relative is a line formed by dividing the
security by a benchmark. For stocks it is usually the price of the stock divided by the
S&P500. The plot of this line over a period of time will tell us if the stock is outperforming
(rising) or underperforming (falling) the major index.
The final step is to synthesize the above analysis to ascertain the following:
 Strength of the current trend.

 Maturity or stage of current trend.
 Reward to risk ratio of a new position.
 Potential entry levels for new long position.
5. ABOUT THE CURRENCIES
5.1 AUSTRALIA: AUSTRALIAN DOLLAR (AUD/USD)

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The Australian dollar (sign: $; code: AUD) is the currency of the Commonwealth of
Australia. The Australian dollar is currently the sixth-most-traded currency in the
world foreign exchange markets behind the US dollar, the euro, the yen, the pound sterling,
and the Swiss franc, accounting in 2007 for approx. 3.3% of worldwide daily foreign-
exchange turnover.
The Australian dollar is popular with currency traders due to comparatively high interest rates
in Australia, the relative freedom of the foreign exchange market from government
intervention, the general stability of Australia's economy and political system, and the
prevailing view that the Australian dollar offers diversification benefits in a portfolio
containing the major world currencies, especially because of its greater exposure to Asian
economies and the commodities cycle.
5.2 EUROPE: EURO (EUR/USD)
The euro (sign: €; code: EUR) is the official currency of the European Union (EU), and is
currently in use in 16 of the 27 Member states. The states, known collectively as the eurozone
are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg
, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
The euro is the second largest reserve currency (a status it inherited from the German mark)
as well as the second most traded currency in the world after the U.S. dollar.
5.3 UNITED KINGDOM: POUND STERLING (GBP/USD)
The pound sterling (symbol: £; ISO code: GBP), commonly called the pound, is
the currency of the United Kingdom. Sterling is the third-largest reserve currency, after
the US dollar and the euro. The pound sterling is also the fourth-most-traded currency in
the foreign exchange market after the US dollar, the euro, and the Japanese yen.
The Channel Islands and the Isle of Man produce their own local issues of sterling; see Manx
pound, Jersey pound, and Guernsey pound.
5.4 UNITED STATES: UNITED STATES DOLLAR (USD/JPY)
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The United States dollar (sign: $; code: USD) is the official currency of the United States.
The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish
it from other dollar-denominated currencies and from others that use the $ symbol.
The U.S. dollar is the currency most used in international transactions. Several countries use
it as their official currency, and in many others it is the de facto currency, and is also used as
the sole currency in some British Overseas Territories.
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6. ANALYSIS AND INTERPRETATION

BRIEF INTRODUCTION OF TECHNIQUE USED FOR TESTING
This research work mainly concentrated on two important techniques to know the advantages
of the technical analysis. They are given below.
 RSI( Relative Strength Index) and

 Moving Average
Each of them clearly explained below:
THE TWO INDICATORS USED ARE:
6.1 MOVING AVERAGE-
The market indices do not rise or fall in straight line; the upward and downward movements
are interrupted by counter moves so the Moving Average is used to find out the exact
movement of the market/ currencies. Moving Average is used to find the Trend.
If we use 5day moving average then, on 6th day we will add 5days price and we will divide by
5.
10day to 30 day Moving Average is used to identify the Short term trend.
50 day to 125 day Moving Average is used to identify the Medium term trend.
150 day to 200 day Moving Average is used to identify the Long term trend
HOW AND WHEN THE MOVING AVERAGE GENERATES THE BUY AND SALE
SIGNAL.
When the price of the currency crosses upside to the Moving Average line then it generates
the Buy Signal. And when the price of the currency crosses below the Moving Average line
then it generates the Sell Signal.
USES OF MOVING AVERAGES
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There are many uses for moving averages, but three basic uses stand out:
 Trend identification/confirmation.
 Support and Resistance level identification/confirmation.
 Trading system
6.2 RELATIVE STRENGTH INDEX:
RSI compares the magnitude of the currencies recent gains to the magnitude of its recent
losses and turn that information in a range of 30 to 70.The number of time period used to
calculate RSI is 14 days.
Formula to Calculate the RSI is
RSI =100-100/1+RS
WHERE RS =AVERAGE GAIN/AVERAGE LOSS.
AVERAGE GAIN = {(PREVIOUS AVERAGE GAIN)*13+CURRENTGAIN}/14.
AVERAGE LOSS = {(PREVIOUS AVERAGE LOSS)*13+CURRENT LOSS}/14.
WHEN THE AVERAGE GAIN IS GREATER THAN AVERAGE LOSS THE RSI RISES
BECAUSE RSI IS GREATER THAN 1.
WHEN AND WHERE RSI GENERATES THE BUY AND SELL SIGNAL.
When the RSI line crosses above the 30 level then it generates the Buy signal, so one should
wait till it moves up to 70level.
When the RSI line crosses below the 70 level lines then it generates the sell signal.
If the RSI goes above 70level the currency is said to be OVER BOUGHT and you should
consider selling at that level.
If the RSI goes below 30 the currency is said to be OVER SOLD and you should look for
buying opportunities.
The NEUTRAL position of this indicator is at 50, if it rises above 50 than it becomes OVER
BOUGHT and if it falls below 50 then it becomes OVER SOLD market.
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If RSI is trading between 45-50level then it is considered as a holding position.
Chart: 1 AUD/USD (Feb 2010)
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INTERPRETATION FOR THE AUD/USD FOR THE MONTH OF FEBRUARY
In the month of Feb with the help of chart we can see the whole month the market was in the
range bond and traded in a flat range so on 24th it has generated a sell call through Moving
Average but at the same time the RSI has generated a buy call so the interpretation has
become wrong because one is showing a buy signal and another is showing a sell signal.
Chart: 2 AUD/USD (March 2010)
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INTERPRETATION FOR THE AUD/USD FOR THE MONTH OF MARCH
In the month of march on 2 nd the Moving Average has generated a buy call and we can see
that RSI is showing sell call as its above 70 level, so its very difficult to enter into the market,
the call was opened till the 21st and on 21st the price of currency has closed below the Moving
Average line and the call was ended and RSI is also showing the sell signals, so its better for
the investor to sell the currency.
And from 23rd till 24 it was in a selling position and again on 26 th march RSI is showing buy
signal and Moving Average is showing sell signal so that means the interpretation can be
wrong as one indicator is showing buy and another one is showing sell signal, again from 29 th
march onwards both the indicators are showing the buy call and till the end of the month it
was in buying position.
Chart:3 AUD/USD (April 2010)
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INTERPRETATION FOR THE AUD/USD FOR THE MONTH OF APRIL
In the month of April starting both the indicators generate buy signal, on 16 th we can see that
they are giving sell signal, the market was very volatile and the movement was also very fast
so it is said that in the volatile markets it is very difficult to predict the market because the
movement will be very fast both in upper and lower side.
Chart :4 EUR/USD (JAN 2010)
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INTERPRETATION FOR EUR/USD IN THE MONTH OF JANUARY
In the chart of Jan month we can see on 6th Jan the price of the currency was trading above
the Moving Average line and also the RSI is trading below by this we interpret ate that on 6 th
Jan both the indicators has generated the buy and on 20 th Jan RSI has generated a buy call and
MA has generated a sell call so it’s a risky call, and in between 14 th to 18th indicators show
that the market is in range bond, so its risky to buy or sell at this point.
Chart 5: EUR/USD (FEB 2010)
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INTERPRETATION FOR EUR/USD IN THE MONTH OF FEBRUARY
In the month of Feb on 3rd the Moving Average has generated a sell call but at the same time
RSI is trading below the 30 level and generated a buy call so by this we can say that this
analysis is not very much accurate and it is a risky call.
But at the end of the Feb both the indicators has generated a buy call so at the end of the Feb
one can buy and can hold for the month of march.
Chart : 6 EUR/USD (MARCH 2010)
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INTERPRETATION FOR EUR/USD IN THE MONTH OF MARCH
In the month of march on 8 th march both the indicators has generated a buy call and from and
from 8th to 14th the market has moved upside and immediately on the 15th the indicators has
generated a sell call and from 15th to 22nd the market was in down trend so by this we can
predict the market movement by using the technical indicators and the technical software’s.
Chart: 7 GBP/USD (JAN2010)
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INTERPRETATION FOR GBP/USD IN THE MONTH OF JANUARY
In the month of Jan on 8th the Moving Average has clearly generated a buy call but at the
same time the RSI was waiting to generate a buy call so in this chart the Moving Average has
generated a call on 8th and RSI has generated a buy call on 10 th so from 10th to 16th the market
was trading in uptrend and on 21st the indicators has generated a sell call and till the end of
the month it was in the selling position only.
Chart: 8 GBP/USD (FEB 2010)
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INTERPRETATION FOR GBP/USD IN THE MONTH OF FEBRUARY
In the month of Feb up to 16 th market was trading in a Flat range and the RSI line was also
showing ranging trend and then on 17th the prices of the currency was traded below the
moving average level on the closing basis and generated the sell signal ,RSI was also
showing the sell call.
On 18th RSI is showing the buy signal as it is at 30 level while Moving Average is showing
the sell signal which is risky for the investor as both the indicators are showing different
results.
Chart: 9 GBP/USD (MARCH 2010)
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INTERPRETATION FOR GBP/USD IN THE MONTH OF MARCH
In the month of march we can see in the chart that the market was very volatile and the
indicators has generated 3 to 4 buy and sell and at the end of the month it was in buying
position.
Chart :10 USD/JPY (JAN2010)
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ANALYSIS AND INTERPRETATION OF USD/JPY FOR THE MONTH OF JANUARY
As we can see that on 12th Jan RSI is giving the sell signal and moving average is also giving
the sell signal which means that its high time where in investors should sell the currency and
can generate good profits, we can see on 21st Jan also both the indicators are showing sell
signals.
Chart: 11 USD/JPY (FEB 2010)
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ANALYSIS AND INTERPRETATION OF USD/JPY FOR THE MONTH OF FEBRUARY
On 3rd Feb we can see that RSI as well Moving Average has generated the sell call, on 16 th
Feb the RSI as well as Moving Average is showing sell signals, so its better for the investor to
sell the currency and earn higher profits.
Chart:12 USD/JPY (MARCH 2010)
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INTERPRETATION FOR THE USD/JPY FOR THE MONTH OF MARCH
In the month of march from the 5th till the end of the month the market is very bullish and the
indicators has generated the buy call, but on 17th and 18 th the price has come below the
moving average line and so the investors can sell the currency at that level and in case of RSI
also it generates sell signal.
CHARTS SIGNALS GIVEN BY DIFFERENT TOOLS
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CURRENCY NAME MONTH (2010) RSI MA
AUD/USD FEBRUARY HOLD/BUY HOLD/SELL
AUD/USD MARCH SELL/BUY SELL/BUY
AUD/USD APRIL BUY BUY
EUR/USD JANUARY BUY/HOLD BUY/HOLD
EUR/USD FEBRUARY BUY/SELL BUY/SELL
EUR/USD MARCH BUY/SELL BUY/SELL
GBP/USD JANUARY SELL SELL
GBP/USD FEBRUARY BUY SELL
GBP/USD MARCH VOLATILE VOLATILE
USD/JPY JANUARY SELL SELL
USD/JPY FEBRUARY SELL SELL
USD/JPY MARCH BUY BUY
7. SUMMARY
In this study, I have made 12 predictions. All tools are used monthly wise for all the four
currencies. The currency movements plotted on the graph helped in making the predictions.
Relevance of the currency price is tested by comparing the actual price and signals of the
graphs. Totally 9 predictions of the graphs were able to make right decision and helped to
investors to profitable trade.3 predictions of the graphs were false. They did not fetch profit
to the traders. Therefore, we can say that technical analysis is worked here to the extent of
75%.
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With the use of various tools of technical analysis like RSI and MA the buy signal and sell
signals are generated for the four currencies and it is found that,
The RSI for AUD/USD February gave the Hold/buy call and Moving Average gave the
hold/sell signal. The RSI for AUD/USD March gave the Sell signal/buy signal and MA gave
the Sell /buy signal. The RSI for AUD/USD April gave the buy signal and MA also gave the
buy signals, but the market is very volatile so it is difficult to predict the market.
The RSI for EUR/USD January gave the sell signal and MA gave the Sell signal. The RSI for
EUR/USD February gave the buy/sell call and MA gave the buy/sell call. The RSI for
EUR/USD March gave the buy/sell call and MA also gave the buy/sell call.
The RSI for GBP/USD January gave the sell signal and MA also gave the sell signal. The RSI
for GBP/USD February gave the buy call while MA also gave the sell call. The RSI for
GBP/USD March gave the buy/sell call and MA gave the buy/sell call, the market is volatile
so it’s very difficult to predict the buy/sell signals.
The RSI for USD/JPY January gave the sell call and MA also gave the sell call. The RSI for
USD/JPY February gave the sell call and the MA also gave the sell call. The RSI for
USD/JPY March gave the buy call and MA also gave the buy call.
8. FINDINGS
 Technical analysis is worked to the extent of 75% in this study.
 Not all the tools used here will give the same result for the same period.
 Moving Average is the most appropriate tool to predict the Currency price movement.
 Most of the Investor, Trader and the Speculators use these technical tools to predict
the market and the movement of the currencies and to understand the major trend
through the past data and the charts.
 Tools of Technical Analysis were able to make more profits when compared to
fundamental analysis.
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 Technical analysis can offer great insight, but if used improperly, they can also
produce false signals.
 Technical Analysis is an identification of the current trend.
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9. CONCLUSION
Technical analysis can offer great insight, but if used improperly, they can also produce false
signals. While trend lines have become a very popular aspect of technical analysis, they are
merely one tool for establishing, analyzing, and confirming a trend. Trend lines should not be
the final arbiter, but should serve merely as a warning that a change in trend may be very
useful.
The price set by the market reflects the sum knowledge of all participants, and we are not
dealing with lightweights here. These participants have considered (discounted) everything
and settled on a price to buy or sell. These are the forces of supply and demand at work. By
examining price action to determine which force is prevailing, technical analysis focuses
directly on bottom line: what is the price? Where has it been? Where is it going?
Even though there are some universal principles and rules that can be applied, it must be
remembered that technical analysis is more an art form than a science. As an art form, it is
subject to interpretation. However, it is also flexible in its approach and each investor should
use only that which suits his or her style.
The result of this study shows that DAY MOVING AVERAGE is the most reliable tool of
technical analysis in terms of returns.
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10. BIBLIOGRAPHY
BOOKS REFERRED
 Madhu vij,” International Finance Management” ,2nd Edition

 Alan C Shapiro, “Multinational Financial Management”, 4th edition
 B.Brahmaiah & P.Subba Rao, “Financial Futures and Options”, 1st Edition
 7Winning Strategies for Trading Forex, by Grace Cheng, Published in 2009
OTHER SOURCES
Company Journal, Magazines, and Journal like Wall Street Journal, Dalal Street, Business
Line and Market News, Daily News and Economic Times.
WEBSITES VISITED
www.moneymarkets.co.in
www.indianmoney.com
www.google.com
www.icharts.com
www.fxstreet.com
www.moneycontrol.com
www.forexfactory.com
www.gcitrading.com
www.metatrading.com
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Forex College Report (Final)

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Technical Analysis on FOREX Market 2013

TECHNICAL ANALYSIS OF FOREX MARKETS

In partial fulfillment for the award of the degree

BACHELOR IN COMMERCE (HONOURS)

GOENKA COLLEGE OF COMMERCE AND BUSINESS

ROLL NUMBER: 106

SL. NO DESCRIPTION PAGE NO

SOURCE 9 DOUBLE TOP (REVERSAL) 37 FOR LIST

 GCI 11 HEAD AND SHOULDERS 39 MT4 Demo

22 RSI And Moving Average of AUD/USD: February2010 52

23 RSI And Moving Average of AUD/USD: March2010 53

24 RSI And Moving Average of AUD/USD: February2010 54

25 RSI And Moving Average of EUR/USD: January2010 55

26 RSI And Moving Average of EUR/USD: February2010 56

27 RSI And Moving Average of EUR/USD: March2010 57

28 RSI And Moving Average of GBP/USD: January2010 58

29 RSI And Moving Average of GBP/USD: February2010 59

30 RSI And Moving Average of GBP/USD: March2010 60

31 RSI And Moving Average of USD/JPY: January2010 61

32 RSI And Moving Average of USD/JPY: February2010 62

33 RSI And Moving Average of USD/JPY: March2010 63

The foreign exchange market is a worldwide decentralized over-the-counter trading financial

1.2 OBJECTIVE OF THE STUDY

 To understand the importance of Technical Analysis in the speculation activities.

1.3 SCOPE OF THE RESEARCH

1.4 PURPOSE OF THE STUDY

1.5 RESEARCH METHODOLOGY

The data that is collected is mainly used by the secondary sources.

1.6 SAMPLING METHOD

Australia (Australian dollar) : AUD/USD

Europe (Euro) : EUR/USD

United Kingdom (Pound sterling) : GBP/USD

United States (United States Dollar): USD/JPY

1.7 LIMITATIONS OF STUDY

1. The research is subject to a time span of three months.

3. Only two technical tools are used.

ABOUT FOREX MARKET

The foreign exchange market is a worldwide decentralized over-the-counter trading (is to

In a typical foreign exchange transaction a party purchases a quantity of one currency by

2.1 SCOPE OF FOREX MARKETS

The purpose of the foreign exchange market 'FOREX' is

2.2 IMPLEMENTATION OF FOREX MARKETS

2.3 TRADING CHARACTERISTICS IN FOREX MARKET

macroeconomic conditions. Major news is released publicly, often on scheduled dates; so

2.4 MOST TRADED CURRENCIES

RANK CURRENCY SYMBOL

1 United States dollar USD ($)

2 Euro EUR (€)

3 Japanese yen JPY (¥)

4 Pound sterling GBP (£)

5 Swiss franc CHF (Fr)

6 Australian dollar AUD ($)

7 Canadian dollar CAD ($)

8 Swedish krona SEK (kr)

9 Hong Kong dollar HKD ($)

10 Norwegian krone NOK (kr)

11 New Zealand dollar NZD ($)

12 Mexican peso MXN ($)

13 Singapore dollar SGD ($)

14 South Korean won KRW (₩)

2.5FINANCIAL INSTRUMENTS IN FOREX MARKET

market for options of any kind in the world.

2.6 FUTURE OF FOREX MARKETS