Project Report On Technical Analysis To Predict Movements in Currency Market

Efficiency of using technical analysis tools to predict 1
Efficiency of using technical analysis tools to

predict movements in the currency market
A PROJECT REPORT
Submitted by
Suyash Chandaliya
In partial fulfilment for the award of the degree
Of
POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)
AT
INSTITUTE FOR FUTURE EDUCATION, ENTREPRENEURSHIP

AND LEADERSHIP
Off Karla Phata, Ekveera Devi Gramasthan Road, Gut No-178, Village-Karla,
Taluka-Maval, Dist.- Pune, India
JULY 2019
INSTITUTE FOR FUTURE EDUCATION,

ENTREPRENEURSHIP AND LEADERSHIP
BONAFIDE CERTIFICATE (B)
This is to certify that this project report “Efficiency of using technical analysis
tool to predict movement in the currency market” is the bonafide work of
“Suyash Chandaliya” who carried out the project work under my supervision.
Prof. Gaanyesh Kulkarni Veteran Wing Commander Sudhir Salunkhe
ACADEMIC SUPERVISOR DEAN/DIRECTOR

ACKNOWLEDGEMENT
I would like to express my profound gratitude to all those who have been instrumental in the
preparation of my project report. To start with, I would like to thank J Marathon Advisory
Pvt. Ltd for providing me an opportunity to undertake this internship and allowing me to
explore this market.
I wish to place on record, my deep sense of gratitude and sincere appreciation to my company
guide, Mr Megesh Kumar Business Head, J marathon who played a pivotal role in making
every concept clear and helping me to understand this field from scratch. He has been a great
mentor also in advising on the formation of the report. I would also like to thank him for his
continuous support, advice and encouragement, without which this report could never have
been in its present form.
I am also thankful to Mr Neelesh who always was available as a mentor and an advisor. His
experienced advises have always led me a step closer to achieve my objective.
Mr Gopal Kumar business head have shown constant support in making me understand and
explore the area of financial markets which itself is very huge, and without them, I would not
have been able to develop my interest in this field.
I would also like to mention the unconditional help put forth by the entire team of interns and
colleagues who have always been eager to constantly teach and learn; and believed in a strong
team work.
I am deeply grateful, to my faculty guide Prof. Gaanyesh Kulkarni for his invaluable
suggestions, comments, and feedback. He was always available to clarify any queries and has
been a support throughout.
They have served as a beacon of light. Their patience and faith in my abilities always boosted
my confidence and to achieve an extra mile.
I am assured that this internship would prove to be very beneficial for my future assignments
and career in the long run.
Suyash Chandaliya
TABLE OF CONTENTS
Sr. No Item Page No
1 Bonafide Certificate - Company Supervisor 2
2 Bonafide Certificate – Academic Supervisor 3
3 Acknowledgement 4
4 Table of contents 5
5 Executive summary 6
6 Introduction 8
7 Industry and Company profile 13
8 Theoretical Background of study 23
9 Technical analysis and indicator 28
10 Literature review 42
11 Project design and methodology 46
12 Data analysis 50
13 Findings 59
14 Learnings 60
EXCUTIVE SUMMARY
At the J Marathon Advisory Pvt. Ltd., I was aligned to the responsibilities of a Financial
Analyst. My primary task was to analyse the market trends and use various kinds of techniques
to predict the future trends.
There are numerous significant indicators that help a trader to set their risk and reward in the
right proportion.
Currency market gives a trader an opportunity to trade in major currencies such as AUD/USD,
GBP/USD, USD/CHF, USD/JPY, EUR/USD etc. When the value of one currency goes up, the
currency against it falls. Owning the said commodity to trade in this market is not necessary.
Traders/investors only need to deposit a certain sum of money with brokerage firms in order
to serve the margin requirements.
There are various participants in the market that push the price up or pull it down and determine
the force in the currency movement. There are technical indicators that would help an analyst
to experience the price movements. This includes – Bollinger bands, stochastic oscillator,
Pivot point’s calculations, Relative strength index, Moving average, Fibonacci etc. A
detailed study and observations on these indicators is a crucial part of the project.
To support these technical indicators, the fundamental factors have to be analysed to check if
the on-going economic trends/news is moving in or against the direction of the respective
country’s currency. The market’s sentiments are to be judged. This would lead me to the
support and resistance levels and understand how one can trade by playing there.
While checking a graph of a currency, there are 3 ways by which one can observe the currency
– Bar chart, Candlesticks, and Line chart. The pattern I have adopted and is highly
recommended across the world is the candlestick pattern. It shows if the market is bullish or
bearish. Once the market analysis was learned appropriately and the strategies were developed,
I was required to use good client building skills and obtain an HNI. The client so obtained
would be the holder of the trading account, directly handled by me. It was my responsibility to
set the right expectations for the client and assure him of his investment security and returns.
The project, in a nutshell, is to introduce me to the concept of wealth management and

maximization, by trading in the currency (CFD) market and how a Financial Analyst is
responsible for entering the market and executing the trade so as to achieve the expected set of
returns.
KEY WORDS: Foreign exchange market; Forecast Markets-Fundamental factors

vs. Technical indicators; Understanding the market; analysing charts.
1. Introduction
The de-linking of gold and currency values following the collapse of the Bretton woods
agreements in 1973 gave birth to the interbank currency exchange market which is today
known a foreign exchange market or a forex market.
The forex market is a free market where prices are governed by the forces of the supply and
demand the forex market has a several advantage over the traditional market, 24-hour 5 days
a week open market, large volumes (1.93 quadrillion market size and $5.3 trillion dollars trader
per day), 85% of the global forex market transaction happen on only 7 currency pair known as
the major (EURUSD, USDJPY, GBPUSD, AUDUSD, NZDUSD, USDCAD, USDCHF)
(Broker, 2019).
All over the world, CFD market plays a vital role in establishing strong trading practices.
Factors not only at the micro level but also macro, affects these practices. If there are no
currency and commodity exchanges, a standardized price for them would be difficult to
establish. Upon the absence of these exchanges, producers of the commodity would be unable
to pay their financial obligations as they would not be able to hedge their operations. This
would eventually result in higher commodities’ prices and costs of operation across
boundaries.
1.1. Purpose of the study
Meeting the main purpose of this report - understanding the commodities market, Currency
market and its workings holds utmost importance. The next important purpose is to be aware
of the risks and rewards. Since, this market is highly volatile, though one can chop through
high returns, they could also lose the same amount in the same time. Hence, knowing about
the risk-taking capacity of oneself or the prospective client is substantial. This market also
allows one to trade in Multi Commodity Exchange (MCX). MCX offers options trading in gold
and silver. Since, this market is diversified in nature, a comparative analysis of the risk-reward
ratio in each market should be carried out, if an investor wants to build his portfolio in each
one these markets.
1.2. Objectives of the study
The primary objective of this study to analyse the market through technical and fundamental
tool and help to Financial Analysts to make well-informed trading decisions for their clients.
To summarise, it allows an analyst to take calculated risks in order to secure high returns with
the help of risk mitigation strategies. To be able to achieve the objectives of this research
project, the basics of international currencies and commodities market must be understood
along with the scope within which it works.
 Check for the efficiency of technical tools Moving Averages versus Relative Strength Index.
 To understand the tools used for technical analysis in a leading brokerage firm
 Check for alpha in foreign exchange market over market index – Nifty
 Check for how the two technical tools perform (Sharpe ratio) under different risk
management conditions
 To compare the performance (Sharpe ratio) of Moving averages and RSI for different forex
currencies
1.3. Scope of the study
The scope of this research project would be to cover different set of important fundamentals
given by the chief advisors of a nation. It is important to analyse their statements and what
impact would it leave on the purchasing power of their residents, and also how positively they
take the new norms introduced. These amendments strongly affect the value of a currency
when compared against the others. Studying about these helps the analysts to judge if that
currency is going to favour the bullish market or the bearish market.
1.4. Limitation of the study
While covering the international currencies and commodities market, due to it being
extensively large, one might face few challenges. The primary one being getting accustomed
to the dynamic market conditions and building strategies to suit those conditions. Next, would
be using the client building skills appropriately. Due to the market being hugely volatile, the
High Net-worth Individuals (HNIs) or the prospective clients tend show a lower interest when
compared to other investment options. Going by the basic rule of Finance: high risk, high
returns - the third challenge is to develop proper risk mitigation mechanism, failing which the
risk associated becomes quite high as the rewards are equally satisfying and high. Lastly, the
market structure so designed is so vast that the tools and techniques that help you survive, are
constantly supposed to be studied and updated over the time.
1.5. Methodology adopted
Since this is a live market where the market conditions constantly change every day, past
theoretical references become exhaustive as they could be only used to observe the trend and
pick a clue as to what would be the market’s reaction next. Hence, for this purpose the research
is solely based on historical trend lines and formations. The most important research method
adopted is “exploratory research”. As the name implies, its aim is merely to experiment with
and explore the research questions and does not concentrate on offering final and conclusive
solutions to prevailing problems. This kind of research usually focuses on studying a problem
that has not been clearly structured or brought up earlier. It simply covers the research topic
with varying levels of depth.
From this kind of research, there are other 3 ways which are used to determine the market’s
force:
1.1 Types of Market analysis
1.5.1. Technical analysis
Technical analysis (TA) or charting that usually include future price and volumes by using
historical data created by market reaches at future currency price movements Although TA in
general has been used for more than hundred years, the field had received scant attention until
recently by academicians who had been more focused on fundamental approaches. (SEYED
HADI MIR YAZDI, 2013). Quantitative and qualitative are two main analytical concepts for
TA. The quantitative- based analysis tries to make indicators such as MACD and P-SAR while
the qualitative-based analysis depends on clarification of the shape of geometric patterns like
levels of support and resistance and double bottoms. Technical analysts do not measure a
stock’s intrinsic value but alternatively use charts and other instruments to recognize patterns
that can advocate perspective activity. Exactly, as there are many investment techniques on the
fundamental analysis, there are as well many various types of technical traders. Technicians
can depend on chart patterns, technical indicators and oscillators. Moreover, technical analysts’
exclusive use of historical price and volume data is what separates them from fundamental
analysts (Veliota Drakopoulou, 2015).
1.5.2. Fundamental analysis
Fundamental analysis involves three levels of analysis, which has to be undertaken. The levels
include firm level analysis, industry level analysis and economy level analysis. At the company
level, fundamental analysis may involve examination of financial data, management, business
concept and competition. At the industry level, there may be examination of supply and
demand forces for the products offered by the company. At national level, fundamental
analysis might focus on economic data to assess the present and future growth of the economy.
To forecast future stock prices, fundamental analysis combines economic, industry, and
company analysis to derive a stock's current fair value and forecast future value, Stock Chart
(2015). If fair value is not equal to the current stock price, fundamental analysts believe that
the stock is either over or under valued and the market price will ultimately gravitate towards
fair value (Bonga, 04/2015). Fundamental analysts support that the individual equity securities
and the stock market in its entirety have a fundamental “intrinsic value” that is concluded by
analyzing present and prospective “earnings, cash flows, interest rates and risk variables”. A
company’s fundamental analysis determines a stock’s intrinsic value, the stock’s actual value
contrary to the price it is traded in the stock market (Veliota Drakopoulou, 2015).
1.5.3. Sentimental analysis
A new approach based on the market sentiments to analyse financial data rather than the
traditional approach based on volatility measures. Market sentiment is the general prevailing
attitude of investors to the anticipated price development in a market. This attitude is the
accumulation of a variety of fundamental and technical factors, including price history,
economic reports, seasonal factors, and national and world events (K. S. Madhava Rao, 2014)
2. Industry profile and company profile
2.1. History
The history of currencies and trading is as old as mankind and Talmudic writings mentioned
people who assisted others doing transactions in exchange for a commission a few thousand
years ago. Today, we would call these helpers brokers. In the following, we take a look at the
origins of currencies and trading, see how currency trading evolved over the centuries and we
also take a look at the Forex market today and the future. The history of currencies is not only
very interesting, but it helps you connect to the financial instruments that we trade every day
and understand the underlying dynamics a little bit better. (Rolf, 2015). Currency trading and
exchange first occurred in ancient times. Money-changers (people helping others to change
money and also taking a commission or charging a fee) were living in the Holy Land in the
times of the Talmudic writings (Biblical times). These people (sometimes called "kollybistẻs")
used city stalls, and at feast times the Temple's Court of the Gentiles instead. Money-changers
were also the silversmiths and/or goldsmiths of more recent ancient times. During the 4th
century AD, the Byzantine government kept a monopoly on the exchange of currency. Papyri
PCZ I 59021 (c.259/8 BC), shows the occurrences of exchange of coinage in Ancient Egypt.
Currency and exchange were important elements of trade in the ancient world, enabling people
to buy and sell items like food, pottery and raw materials. If a Greek coin held more gold than
an Egyptian coin due to its size or content, then a merchant could barter fewer Greek gold coins
for more Egyptian ones, or for more material goods. This is why, at some point in their history,
most world currencies in circulation today had a value fixed to a specific quantity of a
recognized standard like silver and gold (Labi, 2017). Monte dei Paschi, the world’s oldest
bank, was built around that time and its only purpose was to facilitate currency transactions.
The first Forex market was established in Amsterdam, roughly 500 years ago. This
possibility to freely trade currencies helped stabilize currency exchange rates. From
Amsterdam, Forex trades throughout the whole world were initiated. 240 years ago, 1875, the
Gold Standard was introduced. Within the Gold Standard, a country was limited to only
minting as much national currency as there was Gold held in reserves. The Gold Standard had
the purpose to guarantee the value of a currency. After the First World War, countries had to
print more money in order to finance their expenses, which signals the end of the Gold Standard.
By 1913, the number of Forex trading firms rose from 3 to 71 within only 10 years in
London. 50% of all Forex transactions were made in Pound Sterling. In 2013, the Pound
Sterling was the 4th most traded currency after the US-Dollar, the EURO and the Japanese Yen
(Rolf, 2015).
2.1.1. Industry profile
The foreign exchange market is a global online network where traders buy and sell currencies.
It has no physical location and operates 24 hours a day from 5 p.m. EST on Sunday until 4 p.m.
on Friday because currencies are high in demand. It set the exchange rates for currencies with
floating rates.
This global market has two tiers. The first is the interbank market. It's where the biggest banks
exchange currencies with each other. Even though it only has a few members, the trades are
enormous. As a result, it dictates currency values.
The second tier is the over-the-counter market. That's where companies and individuals trade.
The OTC has become very popular since there are now many companies that offer online
trading platforms. New traders, starting with limited capital, need to know more about forex
trading. It’s risky because the forex industry is not highly regulated and provides substantial
leverage (AMADEO, 2015). The combination of theoretical and practical study on the Global
market helps a trader to differentiate between the domestic market and the international market.
Another important factor that differentiates the international currencies and commodities
market from its other counterparts is the risk. A lot of financial traders would claim this market
as one of the riskiest for reasons such as:
Forex leverage
The leverage available in FX market is one of the highest that trader and investor can find the
anywhere. Leverage is a loan given to an investor by their broker. With this loan, investors are
able to increase their trade size, which could translate to greater profitability. A word of caution,
though: losses are also amplified.
For example, investors who have a $1,000 forex market account can trade $100,000 worth of
currency with a margin of 1 percent. This is referred to as having a 100:1 leverage. Their profit
or loss will be based on the $100,000 notional amount (Ganti, 2008).
Greater volatility
Since this is a 24 hours market, the volatility in this market is at a greater extent and prices
swing to and fro within fraction of seconds; especially when there is a very -important
fundamental news.
10 Biggest player in the foreign exchange market in 2018 are; (FX survey ,
2018)
S.no. Major player Market share%
1. JP Morgan Chase 12.13%
2. UBS 8.25%
3. XTX Markets 7.36%
4. Bank of America Merrill Lynch 6.20%
5. Citi 6.16%
6. HSBC 5.58%
7. Goldman Sachs 5.53%
8. Deutsche Banks 5.41%
9. Standard Charted 4.49%
10. State Street 4.37%
2.1.2. The currency pair which are mostly traded in market are:
S.No. Currency Symbol Country name

1 EUR/USD Euro zone / united kingdom
2 USD/JPY United States / Japan
3 GBP/USD United kingdom / United states
4 USD/CHF United States / Switzerland
5 USD/CAD United States / Canada
6 AUD/USD Australia / United State
These are the most traded currency pair, it doesn’t means that only these currency can be bought
and sold. There are also major currency crosses also called, “Minor pairs”, and exotic currency
pair. Major currency crosses are currency pairs that involve the major currencies but don't
involve the USD in the pair. There are many currency crosses as many different combinations
can be made but the most common minor pairs involve the euro, yen, or the pound, the most
commonly traded one being the EUR/JPY pair.
Exotic currency pairs are currency pair that involve the USD and currency of an emerging
economy.
2.1.3. The exotic currency pair are some:
S.No. Currency Symbol Country name

1 USD/NOK United states / Norway
2 USD/MXN United states / Mexico
3 USD/ZAR United states / South Africa
4 USD/SGD United states / Singapore
5 USD/HKD United states / Hong Kong
6 USD/DKK United states / Denmark
7 USD/INR United states / India
8 USD/THB United states / Thailand
The USD is involved in each of these currency pairs. The reason behind this is that the USD is
the reserve currency of the world, as it has the world's biggest economy with a stable political
system. The USD can be trusted as a fall back currency as it has the highest amount of strength
when compared to other currencies (NASADAQ, 2018).
2.1.4. Forex market timing as per Indian time
Stock exchange Country Opening timing Closing timing

(IST) (IST)
Japan exchange Japan 5.30 A.M. 11.30 P.M.

group
London stock UK and Italy 1.30 P.M. 10.00 P.M.

exchange
New York stock USA 7.00 P.M. 1.30 A.M.

exchange
Australian securities Australia 5.30 A.M. 11.30.M.

exchange
2.2. Company profile
J marathon advisory is a financial consultant company which is established in 2012, head

quarter in Bengaluru. Which was founded by Megesh. M. It has 2 branches, one in Chennai
and other in Hyderabad which is opened recently. Having more than years of experience in
Financial Service Sectors. They offer technology based services for clients to effectively
monitor their portfolio and help them in reaching their financial goals. They focus at being the
most reliable prompt and efficient provider of financial services. Focus in training and
educating individuals about global market and to sharpen their skills to participate in the
financial world. Came alive with the intention to provide support and guidance to new comers
to the trading world. With the knowledge and years of experience in trading they have
customized the training programme and made it simple for a layman to understand the financial
market. They endeavour to be one stop solutions for financial boutique and to be immense help
to their investors, learners and provide help regarding, stock market, advisory services, training
and Investments. They provide best profitable services to the clients at investor centric is there
single utmost aim is to assist clients with dedication and integrity so that they exceed customer
expectations and build enduring relationships.
2.2.1. Mission:
To develop meaningful and life long relationship with the clients by providing them the
highest quality services and address every aspect of their financial related issues.
2.2.2. Vision:
To be the most trusted and respected professional services firm recognized by our
clients delivering excellent services, which is value for money and more than their
expectations.
2.2.3. Function Area:
 Marketing:
The marketing interns where asked to promote the company product among their peers and
assist them with quires. Promoting the company by using their digital marketing skills. Conduct
seminars in colleges to promote company products.
 Financial analyst:
Analyzing Indian stocks, commodity, derivative, currency, and global market. Analyzing based
on fundamentals and technical with the available data in the markets. Engaging in live trading
with research analyst. Assisting research calls for long-term trading, short-term trading and
intra-day trading. Generating lead and closing portfolios.
 Training:
Training is provided to every new batch of interns for few days and the learnt techniques were
examined on demo accounts which will be opened by each intern. Once the training is done for
certain period real accounts will be opened. And training services will also be provided to
customers that will be for 2 days if they want to trade on their own or else the company staff
will help the clients in handling over their accounts.
2.2.4. Area of operation
 Investment guidance:
The placing of funds into the proper investment vehicles based on the investor’s future goals,
time horizon, and priorities, this also takes into account of safety of the investor as well as
liquidity and level of return. Ideally proper investment planning will allow the investor for to
produce financial rewards over time. The company allocated 3 types of services for 3 different
types of investors:
 Do it for me – Advisory referral service
 Help me out – Professional portfolio management.
 Do it myself - Independent investors.
 Training and Education:
The company provides a comprehensive, interactive and practical investor education for
market participants would be equity investors and the public in general. The company believes
that the most important asset an investor can have is knowledge; they provide their clients with
an exceptional education experience using innovative interactive resources.
 Consulting:
They say “From our knowledgeable guidance to power on the right track to do what you’re in
passionate”.
2.2.5. Competitors:
Star fing (star financial group): It is a leading stock, share, currency and commodity broking
headquarters in India. They operate on a retail focused stock trading model that provides
revolutionary trading platforms and expertise to a diversified client base.
Currentree: Its team consist of experts and advisors who come with many years of experience
and are up-to-date with business practices. It provides training, consulting and advisory
services. They believe in success of client, trainees or program participants can impact their
success.
2.2.6. Staff :
It is about human resource of the organization and their help to manager in the company
growth. J marathon advisory firm has 15 employees and has interns of more than 300 in all
three branches, its main strength lies in their interns. Because the interns have come from
diverse background of marketing, analytics, finance etc., who can help company with their new
ideas. As their will, be short period of time for each intern to stay in company most of them
will be motivated and goal oriented.
2.2.7. MANAGERIAL STRCTURE:
Here the company follows Line organizational structure.
Founders
Chennai- Branch Bangalore- Head Hyderabad-

Manager Office Branch Manager
Portfolio Managers Portfolio Managers Portfolio Managers
Assistance Assistance Assistance

Portfolio Managers Portfolio Managers Portfolio Managers
2.2.8. STYLE:
It is the style of leadership adopted. This company follows Democratic type of leadership i.e.
also known as participative leadership which means members in the company take active role
in decision making process.
2.2.9. Strategy:
The plan that is devised to maintain and build competitive advantage over the competition. The
strategy of company is:
They are acting as a promoter in India for Grand bloom financial services a Dubai based
company which serves in forex market. Inside India they collaborated with Edelweiss
brokerage limited which serves in Indian market. The company also provide free advisory
services for its clients for 2 months after that to continue those services subscription should be
paid. And the commission of some particular percentage is charged only at the time of
withdrawal. When it comes to forex market, they provide leverage of $200 for investment of
$200.
2.2.10. Study of system and process:
System: the daily activities and procedures the staff members engaged in to get the job done.
The system in the company is each and every employee will be working with their job assigned
i.e., handling client portfolios. Each level in the structure handles different levels like Assistant
portfolio managers handle (those clients who had invested Rs. 15,000/-). Portfolio Managers
handle (those client portfolios who invested at a range from Rs. 50,000/- to 75,000/-). Branch
managers look after the below line and make and report to head office and they also handle
(those client portfolios at a range of Rs.1, 00,000/-) and the co- founders will take care of those
portfolios of clients who invested above Rs.5, 00,000/-. Every ones daily job is to go through
the fundamentals of different countries, followed by technical and later the suggestions are
given to clients.
2.2.11. SWOT analysis:
The Strengths, weakness, opportunity and threats that j marathon advisory faces and has at
present can be represented in a better way with the help of a SWOT table as follows.
Strengths Weakness
1. High quality for investors 1. Newly established in India.
2. Emphsis on bulding stonger bond with 2. Growth and Expansion
customer
3.Training and consulting
Opportunites
SWOT
1..Growing forex market
2. Emerging stock market Threat
3. Expansion in untapped market 1.Highly competitive enviornment
4. Expansion in Emerging 2. Government policies and global
economies financial crises
2.2.12. Company Exchange Registrations Details:
Bombay stock exchange: AP0132610175939
National stock exchange: AP2258094

3. Theoretical background of study
Before a trader starts to trade in this market, it is very important for them to know about the
technical terminologies that are widely used across the globe. This helps them to understand
the international currencies and commodities market better.
 Base/quote currency
Currency unit prices are quoted as currency pairs. The base currency – also called the
transaction currency - is the first currency appearing in a currency pair quotation, followed by
the second part of the quotation, called the quote currency or the counter currency. For
accounting purposes, a firm may use the base currency as the domestic currency or accounting
currency to represent all profits and losses (Kenton, 2004). This is how a currency is called
when they are written in pairs. For example, when the pair GBP/USD is seen, we would call
GBP the base currency and USD the quote or the counter currency. Similarly, when we see the
pair USD/CAD, we would call USD the base currency and CAD the quote or the counter
currency. The quotation EUR/USD = 1.2500 means that one euro is exchanged for 1.2500 U.S.
dollars. In this case, EUR is the base currency and USD is the quote currency (counter
currency). This means that 1 euro can be exchanged for 1.25 U.S. dollars. Another way of
looking at this is that it will cost you $125 to buy EUR 100 (chen, 2005).
 Point in Point percentage (Pip)
A pip, short for point in percentage, is a very small measure of change in a currency pair in
the forex market. It can be measured in terms of the quote or in terms of the underlying
currency. A pi is a standardized unit and is the smallest amount by which a currency quote can
change (Lee, 2006). For example EUR 100,000 x 1.16650: USD/EUR = USD 116,650, you
closed your position by selling one contract at 1.16660. Notionally, you are selling the Euros
and buying the Dollars. EUR 100,000 x 1.16660: USD/EUR = USD 116,660, that means that
you originally sold $166,650, and ended up with $166,660, for a profit of $10. From this, we
can see that a one-pip movement in your favor made you $10 (goludev, 2019).
 Spread
Spread is the difference between the bids and ask price of a currency. When a trader wants to
buy a currency, he is going to hit the bid/buy side which is placed just after the ask/sell price.
The spread is how “no commission” brokers make their money. Instead of charging a separate
fee for making a trade, the cost is built into the buy and sell price of the currency pair you want
to trade. For most currency pairs, one pip is equal to 0.0001.
An example of a 2 pip spread for EUR/USD would be 1.1051/1.1053. This quote indicates
a spread of 2 pips (pipslogy, 2019).
In the above example, the ask/sell price is 1.9512 and the bid/buy price is 1.9523. The spread
would here be hence, 1.9512 - 1.9523. That is 11 pips.
 Hedging
This is the ability of an investor/trader to hold their buy position and sell position together. This
is usually done when a trader feels that either of his call is not working and hence to compensate
for the losses, he takes the opposite call immediately.
 Lots
This is the size of the order a trader punches at the time of taking calls. In layman’s terms it
could also be called the number of units. For example, for someone who has an account with
good balance and can take greater risks than the others, would punch a standard lot size of 1, 2
and so on. In 1 standard lot, with every movement of pips in currencies, it would benefit the
trader with $10 if the market is moving in his favour. Whereas 1 standard lot gives the trader
$10 with each pip favourable movement in gold. However, for someone who punches mini lot
such as 0.1, 0.2 etc. gets $1 for 1 pip movement in his favour (currency) and $10 for 1 pip
favourable movement (gold).
(Babypips, 2011)
 Swap/Rollover charges
When a trader holds her position in the market for more than one trading day, they either have
to pay these charges or receive these, in the form of interest. This solely depends on the
currency pairs for which the position is held by the trader. Swap is calculated
Swap = (pip value * swap rate * Number of nights)/ 10
 Going long
This denotes purchasing or buying a security, stock, commodity or a currency whilst expecting
it to rise in the near future.
 Going short
This denotes selling of a security, stock, commodity or a currency whilst expecting it to see a
downfall in the near future.
 Leverage
It denotes he virtual credit given to the client by the company. For example, 1:100 leverage
means that the initial margin for the client will be 100 times less than the transaction size.
 Margin
It denotes the amount of funds required to maintain the open positions, as determined in the
contract specifications for each instrument.
 Downtrend
It represents a “Bearish” Market which means the Prices are going down.
 Uptrend
It represents a “Bullish” Market which means the Prices are going up.
 Stop loss
An order to close and open position at a certain price in case the position generates loss losses.
 Take profit
An order to close an open position at certain price in case the position generates the profit.
After knowing what each term denotes and knowing the overview of this market, a trader then
has to explore the market conditions in which it is presently operating. Then they have to get
the knack of the analysis. Upon analysing the various fundamental news of a country, a trader
can clearly see how the value of the currency gets affected in the international market when
compared with wide range of currencies being traded. This said news helps an analyst to
speculate the flow of the currency and accordingly take a buy or sell call. Along with the
currencies, an analyst can view the gold bullion market internationally and know about its
prevailing market price across the globe. Gold no longer is just an asset to be held physically.
It can also be traded just like how currencies are. Even gold is a two-way market and its
movement (bullish or bearish) helps the trader to maximize their wealth. Gold faces usually
more volatility than the currencies as the rewards associated are higher comparatively. This
volatility can be observed when the Asian markets open. Foreign Exchange market is gaining
popularity now in India after having itself established internationally. With diverse investment
capacities in a country like India, Indians want an assured investment with higher returns when
compared to the prevailing market rate. Introducing the concept of Global as an investment
showcases their acceptance and attitude towards considering Global as a stable investment
option. When the prospective clients learn about the risks associated, they are assured that the
analysts do not take risk but take ‘calculated risk’.
To get accustomed to the sure shot way of successful trading, traders usually debate amongst
themselves as to which form of analysis is better. However, some fail to realize that all 3 of
them hold equal importance and impact in the foreign exchange market. As briefly mentioned
above, it is a three-legged stool. Even if one of the legs is absent/weak, the stool will tend to
collapse. The same goes with trading in this market. Upon analysing the market, even if one
factor is ignored or the trader does not hold gold knowledge of that factor, there are chances
the trader could fail.
4. Technical analysis and indicators
Before discussing the theoretical framework of technical analysis, it is necessary to define what
technical analysis is. Edward and Magee (2001) define technical analysis as the knowledge of
recording, typically in graphic form, the actual history of trading (volume of transactions, price
changes) in a definite stock or in ―the Averages‖ and then realising from that pictured history
the possible future trend. (Masry, 2017). Technical analysis is the scope of a framework within
which the global traders learn about the price movements with the help of few indicators on
the candlestick patterns. These indicators shall be explained in detail below. Technical analysis
involves the prediction of future exchange rate (or other asset-price) movements from an
inductive analysis of past movements, using either qualitative methods (e.g. the recognition of
certain patterns in the data for visual inspection of a time-series plot) or quantitative techniques
(e.g. based on an analysis of moving averages), or a combination of both (Lukas Menkhoff,
2006). Academic research on the profitability of technical analysis tends to confirm the idea
that foreign exchange markets trend particularly well. After reviewing the literature on
technical analysis in a variety of markets, Park and Irwin conclude that technical analysis is
profitable in foreign exchange and commodity futures markets but not in stock markets. In
particular, technical textbooks such as Murphy (1986) and Pring (1991) outline three principles
that guide the behaviour of technical analysts. The first is that market action (prices and
transactions volume) “discounts” everything. In other words, an asset’s price history
incorporates all relevant information, so there is no need to forecast or research asset
“fundamentals.” Indeed, technical purists don’t even look at fundamentals, except through the
prism of prices, which reflect fundamentals before those variables are fully observable. The
second principle is that asset prices move in trends. This is essential to the success of technical
analysis because trends imply predictability and enable traders to profit by buying (selling)
assets when the price is rising (falling). This is captured in the technicians’ mantra “the trend
is your friend.” The third principle of technical analysis is that history repeats itself. Asset
traders will tend to react in a similar way when confronted by similar conditions (Christopher
J. Neely, 2011). The efficient market hypothesis (EMH) indicates that investors cannot
generate abnormal returns via depending on information enclosed in historical prices if the
market is at least weak form efficient. The efficient market hypothesis recognises the notion
that bases of expectable trends that offer significant abnormal returns are instantly shattered by
investors. Through shattering these trends in the market, investors rapidly reduce any
predictableness in the stock market. Investors who accept EMH try to form portfolios that
optimally diversify risk or mimic the market. In contrast, technical trading investors try to
regularly beat the market via revealing inefficiencies in market structure. Users of TA are
Chartists, as they mainly depend on charts, they think that history trends to repeat themselves,
thus they can use these patterns in predicting stock prices. Although there is no reason
explaining why patterns are repeated, TA approach determines time of direction changing
(Upwards or Downwards), which helps the investor to choose suitable time to enter or exit
from the market. Others see that TA Is a reflection of the notion that prices are moving in the
direction according to the change in investors‘ attitudes towards the political, economic and
monetary situations. Evident skill technical analyst is to identify trend changes at an early stage
and to use this knowledge in the formulation of appropriate strategies until the appearance of
evidence that proves the trend is fluctuating (Masry, 2017). In summary, TA value comes from
the fact that current market statics are not enough to transmit information, comparing previous
prices to current ones is not enough to enable investors to have more assessments that are
accurate. On the other hand, market volume provides decision makers with information about
quality of traders details, which cannot be defined through prices, as both market volume and
prices provide together more valuable information than just observing prices, whereas main
information which affect the price - economic, political, psychological – come from volume of
transactions and prices of securities. From the above, it can be concluded that most of
abovementioned definitions contain two or more of the three following points:
 Prices move in trends.

 History repeats itself.
 Market action discounts everything.
In short, TA analyses history of past trends to evaluate investments nowadays, this philosophy
is based on above-mentioned three points that allow studying charts and current data so one
can expect future market directions (Masry, 2017).
There are a number of technical indicators. Some are traditional and have been known for
decades. Already in 1988 Colby issued encyclopaedia of technical market indicators (Colby,
1988). More than three decades ago George Lane published his Lane's stochastic oscillator
(Lane, 1984), or even in 70s the Relative Strength (RS) was developed by Wilder (1978). In
the 80s-90s of 20th century for instance John Bollinger published Bollinger Bands indicator
(Bollinger, 1992) which belongs to the group of channel systems that were already described
by Kaufman (1987) and by this the list of indicators does not end. Technical indicators play a
major role during the absence of any fundamental news. 80% of the times, the calls on any
currency are solely taken on these indicators (KOLKOVÁ, 2017). There are some more
technical indicators that would help an analyst to experience the price movements. This would
include- Pivot points calculations, Convergence and divergence, Bulls and bears power, etc.
Technical indicators play a major role during the absence of any fundamental news. 80% of
the times, the calls on any currency are solely taken on these indicators.
How do these technical indicators actually work? Let’s look at the few most commonly used
one by the analysts in this market.
4.1. Pivot point
Support and resistance levels are important because they represent points at which major
price movements are expected to occur. Being able to identify these levels in order to act on
upon the expected price movement is important to traders and short-term investors, as well as
long-term investors looking for a buy or sell point. One common method of identifying support
or resistance levels is using pivot points. Furthermore, pivot points can help determine the
direction of the market and as such are leading or predictive indicators. They were originally
used by floor traders to set key levels of support or resistance (staff, 2013).
Calculation of pivot point
Pivot point = High + low + close/3
Resistance 1 = (2* pivot point) – Low
Support 1 = (2* pivot point) + High
Resistance 2 = pivot point + (High - low)
Support 2 = pivot point - (High - low) (Silvia Dedu, 2007)
Calculation of pivot point on the Microsoft excel software with data frame January 2014 to
December 2018 on monthly basis with five major currency pair i.e. AUD/USD, USD/CHF,
GBP/USD, USD/JPY, EUR/USD.
Interpretation
Calculated pivot points serve as the primary support and resistance levels. We expect the largest
price movements to take place at those prices, so it is important to watch price action closely
when these levels come into play. Traders use pivot points in two ways. The first is in
determining the overall market trend, while the second is as enter and exit price points in the
market. When a pivot point is broken by prices moving upward, this is a bullish signal, and
vice versa. As a trader, you can use pivot points to set a limit order to buy shares when a price
breaks a resistance level or set a stop-loss order on an active trade if a support level is broken.
Traders also use the second support and resistance levels to identify potentially overbought or
oversold situations. Price movement above the second resistance level is a sign of strength, but
also indicates a potential overbought situation that may lead to a pullback in price. Likewise, a
move below the second support level is a sign of weakness, but also suggests a possible
oversold situation that may lead to a price rebound (staff, 2013).
4.2. Support and Resistance
According to one major technical analysis manual, “support is a level or area on the chart under
the market where buying interest is sufficiently strong to overcome selling pressure. As a result,
a decline is halted and prices turn back again. . . . Resistance is the opposite of support”. The
simplest approach to visual assessment is to look at recent minima and maxima: “Usually, a
support level is identified beforehand by a previous reaction low,” and “a resistance level is
identified by a previous peak” (Osler, 2000).
If one notices above, the first Red horizontal line is the resistance point wherein the candles for
past few days have not been able to break and go beyond. Similarly, the bottom horizontal line
is the support price where one can expect the market to stabilize there for some time and again
shoot back up.
In the market of currency trading, when a trader says technical analysis, the first and foremost
thing that pops up is the candlesticks and a chart which they would eventually study.
 Potential Buy signal
It is a general expectation that when prices touch a historical level of support, prices will cease
the negative momentum downward and reverse course; hence a potential buy signal could be
triggered when price touches the support line.
 Potential sell signal
If prices reach a historical price ceiling (resistance), typically it is expected that prices will stop
at that level, unless some other external impetus like great earnings can send prices past
historical resistance; therefore, a potential sell signal is triggered when price touches the
historical resistance line.
 Breaking Support and Resistance
If price breaks below support, then that support level can become new resistance level.
If price breaks above support, then that resistance level can become new support level (pines,
2019).
4.3. Bollinger Bands
Developed by John Bollinger, Bollinger Bands® are volatility bands placed above and below
a moving average. Volatility is based on the standard deviation, which changes as volatility
increases and decreases. The bands automatically widen when volatility increases and contract
when volatility decreases. Their dynamic nature allows them to be used on different securities
with the standard settings. For signals, Bollinger Bands can be used to identify M-Tops and W-
Bottoms or to determine the strength of the trend. Bollinger Bands consist of a middle band
with two outer bands. The middle band is a simple moving average that is usually set at 20
periods. A simple moving average is used because the standard deviation formula also uses a
simple moving average. The look-back period for the standard deviation is the same as for the
simple moving average. The outer bands are usually set 2 standard deviations above and below
the middle band (chart, 2019). This dynamic nature of Bollinger Bands could also be used as
an advantage and be used with different types of securities while the standard settings are
applied. Bollinger then uses these various patterns formed in the shape of W with Bollinger
Bands to recognize the W-Bottoms. W-Bottoms were part of Arthur Merrill's work that
identified 16 patterns with a basic W shape. Bollinger uses these various W patterns with
Bollinger Bands to identify W-Bottoms, which form in a downtrends and contain two reaction
lows. In particular, Bollinger looks for W-Bottoms where the second low is lower than the first
but holds above the lower band. There are four steps to confirm a W-Bottom with Bollinger
Bands. First, a reaction low forms. This low is usually, but not always, below the lower band.
Second, there is a bounce towards the middle band. Third, there is a new price low in the
security. This low holds above the lower band. The ability to hold above the lower band on the
test shows less weakness on the last decline. Fourth, the pattern is confirmed with a strong
move off the second low and a resistance break (chart, 2019).
The image below explains in detail with the help of technical terminologies on how a trader
can analyse the W pattern and connect the dots toward a trend formation. Whereas, the image
beneath that shows the live terminal and how an experienced trader could read the trend amidst
the charts and take his next move.
Bollinger uses these various M patterns with Bollinger Bands to identify M-Tops, which are
essentially the opposite of W-Bottoms. According to Bollinger, tops are usually more
complicated and drawn out than bottoms. Double tops, head-and-shoulders patterns, and
diamonds represent evolving tops. In its most basic form, an M-Top is similar to a double top.
However, the reaction highs are not always equal; the first high can be higher or lower than
the second high. Bollinger suggests looking for signs of non-confirmation when a security is
making new highs. A non-confirmation occurs with three steps. First, a security creates a
reaction high above the upper band. Second, there is a pullback towards the middle band. Third,
prices move above the prior high but fail to reach the upper band. This is a warning sign. The
inability of the second reaction high to reach the upper band shows waning momentum, which
can foreshadow a trend reversal. Final confirmation comes with a support break or bearish
indicator or signal.
Upon knowing about the M pattern that is formed by the help of Bollinger Bands, it would be
easy for an analyst to notice the trend and have an approval from this technical indicator.
 Calculation of Bollinger band

BOLU = MA (TP, n) + m * σ (TP, n)
BOLD = MA (TP, n) – m * σ (TP, n)
Where:
BOLU = Upper Bollinger band
BOLD = Lower Bollinger band
MA = Moving average
TP = (Typical price) = (High + low + close) / 3
n = Number of days in smoothing period (Typically 20)
m = Number of standard deviations (Typically 2)
σ (TP, n) = Standard deviation over last n period of typical price
4.4. Relative system index (RSI)
The RSI is an indicator of the momentum. It was developed by an esteemed technical analyst
Welles Wilder. He was mainly focused on comparing the magnitude, which is the intense effect
of the most recent wins and losses over a certain period of time to calculate the speed along
with the changes in the price movements of an asset (currency/commodity). It is primarily
aimed at identifying the overbought and oversold situation. The most commonly used levels
are 70 and 30.
Traditional interpretation and usage of the RSI is that values of 70 or above indicate that a
security is becoming overbought or overvalued and may be primed for a trend reversal or
corrective pullback in price. An RSI reading of 30 or below indicates an oversold
or undervalued condition (chen j. , 2003).
Following is the formula which is used to calculate the Relative Strength Index:
RSI = 100 - 100 / (1 + RS)
Here, RS is the average gain of the bullish period during a certain frame of time (divided by)
average loss of the bearish period during a certain frame of time.
The RSI helps a speculator with the relative evaluation of how strong the security’s recent price
performance is. This, thus, makes it a momentum indicator. RSI’s values range from 0 to 100.
The most used time frames for comparison is 14 trading days.
4.5. Fibonacci
A Fibonacci retracement is a popular tool among technical trader. It is based on the key
numbers identified by mathematician Leonardo Fibonacci in the 13thcentury. Fibonacci's
sequence of numbers is not as important as the mathematical relationships, expressed as ratios,
between the numbers in the series. In technical analysis, a Fibonacci retracement is created by
taking two extreme points (usually a major peak and trough) on a stock chart and dividing the
vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. Once
these levels are identified, horizontal lines are drawn and used to identify possible support
and resistance levels (MURPHY, 2019). These are few important terms that are associated with
this technical indicator.
 Fibonacci Retracements
It is depicted by few horizontal lines on the chart of a security which indicate the levels of
support and resistance.
 Fibonacci Arcs
These are compass-like movements rooting from a low or high which ultimately represent
support and resistance levels.
 Fibonacci Fans
This is a diagonal which is created using the highest and the lowest points on the visible
candlesticks, which then highlights the levels of support and resistance.
 Fibonacci Time Zones
These are the vertical lines that are drawn into the empty space (where the candlesticks are yet
to form) in order to predict the major price movements in the market for that stock.
The thumb rule of Fibonacci retracement says that any currency, stock, security or a commodity
shall at least retrace to 38.2 level after every spike (either upwards or downwards). To simplify,
this means that if a currency for example is seeing an upward trend, it would definitely
retrace/fall back to 38.2 level and vice versa. This is famously known as the Fibonacci
retracement.
4.6. Stochastic oscillator
Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum
indicator that shows the location of the close relative to the high-low range over a set number
of periods. According to an interview with Lane, the Stochastic Oscillator “doesn't follow price,
it doesn't follow volume or anything like that. It follows the speed or the momentum of price.
As a rule, the momentum changes direction before price.” As such, bullish and bearish
divergences in the Stochastic Oscillator can be used to foreshadow reversals. This was the first,
and most important, signal that Lane identified. Lane also used this oscillator to identify bull
and bear set-ups to anticipate a future reversal. As the Stochastic Oscillator is range-bound, it
is also useful for identifying overbought and oversold levels.
 Calculation
%k = (current close – lowest low) / (Highest high – lowest low) * 100
%D = 3- day SMA of %k
Lowest low = lowest low look for the look back period
Highest high = Highest high look for the look back period
%k is multiple by 100 to move the decimal point two places

 Over bought and over sold
The stochastic oscillator makes easy to identify overbought and oversold. Traditional settings
use 80 as the overbought threshold and 20 as the oversold threshold. These levels can be
adjusted to suit analytical needs and security characteristics. Readings above 80 for the 20-day
Stochastic Oscillator would indicate that the underlying security was trading near the top of its
20-day high-low range. Readings below 20 occur when a security is trading at the low end of
its high-low range.
4.7. Moving average
Moving averages are primarily the most recognized technical indicators used to decide the
direction of trading stocks. Every moving average model is the consequence of a statistical
computation of an averaging number of preceding information plotted into a chart enabling
traders to watch at smoothed data rather than focusing on daily price movements inherited in
all financial markets. The employment of moving averages is to recognize trends and reversals,
measure the durability of a stock’s momentum and distinguish varied time periods to observe
momentum, substantiate a stock’s possible support and resistance levels and determine
beneficial stop-losses settings (Drakopoulou, 2015).
 Moving averages as lagging indicators
Moving averages they do not foresee new trends but as lagging indicators validate trends once
they have been recognized. A stock’s price can only be trending up, trending down and trading
in a range. A stock is up trending when the price is above a moving average and the average is
slopping upwards. Conversely, a down trending stock is portending with a down slopping
average. Frequently, traders hold a long position (buy) when the price of a stock is trading
above the moving average and a short position (sell) when the stock price trades below the
moving average (Drakopoulou, 2015).
 Simple moving average
The mathematical average of stock price over a define period of time form a simple moving
average. For instance, to calculate a 15-day moving average the open, close, low or high prices
of the stock can be used to determine a moving average by adding the referenced stock prices
for the last 15 days and then divide the result by 15. The resulting average integrates the past
15 data points to provide the trader a virtual of how the stock is priced the past 15 day.
For instance, to calculate a 15-day moving average the open, close, low or high prices of the
stock can be used to determine a moving average by adding the referenced stock prices for the
last 15 days and then divide the result by 15. The resulting average integrates the past 15 data
points to provide the trader a virtual of how the stock is priced the past 15 day
5. Literature review
“YOU CAN MAKE A KILLING IF YOU GUESS RIGHT. That's the allure. A $5,000 trade
to buy the euro and simultaneously sell the dollar, entered the afternoon of July 10 and
leveraged 100 to 1, had soared to $12,850 just 24 hours later, after the euro rose nearly two
U.S. cents on the news that mortgage giants Fannie Mae and Freddie Mac were teetering on
the brink.
AND IF YOU GET IT WRONG? You can lose all your money (Kosnett, 2008)”. The above
vignette gives a gist about scope of profit making in currency trading using technical analysis
which though not an easy task conjecturally speaking isn’t even one which cannot be mastered
with thorough knowledge and discipline. Also, a lot depends on the financial behaviour of a
particular participant (Hilton, 2001). Mastery is required as the risk involved is considerably
high (Bredin, 2004). “The study focuses on the foreign exchange market, which was certainly
faced with a high degree of volatility over the early part of the study period.”
The preferred risk-reward ratio differs individual to individual and is highly influenced by the
personality traits and risk perception of an investor (V. Ramya Sreedevi, 2011). Investigated
the behaviour of foreign exchange professionals, dealers and fund managers in Germany in
1992. The results showed around 87% of the foreign exchange dealers and 35% professionals
use technical analysis in their decision making. Around 34% of times it was used for intraday
decision making and 40% for decisions ranging from 2 to 6 months. Other interesting findings
is that there was no relationship between institutional size and the preferred use of technical
analysis and chartists and fundamentalists both indicated no significant differences in their
educational level (Pushpa BV, 2017). We identified high volatility levels during the opening
of trading in the principal foreign exchange markets of Tokyo, London, and New York, with
New York having the highest intraday volatility of the three. The reason is said to be the
junction of the afternoon London session with the New York morning session. A lesser
volatility is observed in the junction of the London morning and the Tokyo afternoon sessions.
Volatility information is useful to traders because it provides a measure of activity, giving
indications of both trading volume and trade frequency. According to the liquidity theory
proffered by Admati and Pfleiderer (1989), traders tend to gather in the most liquid part of the
session, and this is precisely the moment of the highest volatility (Bernardo Quintanilla
García, 2012)
 The Foreign Exchange Market
The Foreign Exchange market stands alone as the largest and most liquid markets in the world
with trillions being traded daily. Open 24 hours a day, five days a week, this asset class is
available to everyone from national banks and international corporations to the individual day
trader.
The market tops $4 trillion in average daily turnover (Kazi, 2012). He also points out that
trading in Foreign Exchange means exchanging one currency in return of another either to
hedge impending risk due to exposure in a specific currency or to profit from exchange rate
movements.
The currency can be traded either in the Spot Market, Forwards/Futures market, ETF‟s or
Options Market. It was found that recently the spot market dominates price discovery (Joshua
V. Rosenberg, 2008). Till date, many traders mostly trade certain currencies vs. the U.S. dollar
only. That restricts the trades to dollar fundamentals, sometimes at the expense of the
fundamentals of the other side of the trade. Traders can even expand their opportunities by
trading cross pairs where in US Dollar has been used as a vehicle currency (Kazi, 2012).
Glen Arnold et al. in the book Corporate Financial Management have highlighted that in the
Foreign Exchange market most of the trades are between banks for speculation rather than for
underlying export or import. The results of the study done by (ramacharan, 2000) signify this
as it shows a strong relationship between the trading income of banks and exchange rate
volatility.
But those trades that are done against genuine exposure can affect the following entities:
1. Receipts for Export

2. Payment of Imports
3. Valuation of foreign assets and liabilities
4. Long-term viability of overseas operations
5. Feasibility of a foreign project
Additionally, even if one does not trade in Foreign Exchange Market directly, the value of any currency
in terms of another can sometimes affect the market you watch more than any other variable
(Murphy, 2004).
Believers of random-walk theory say that investors can't beat the stock market because news
travels too rapidly. When a new bit of information emerges, investors react to it almost
instantly, bidding a stock's price up or down until it reaches a new equilibrium. Therefore, the
only things that the market hasn't taken into account are things that haven't happened yet. Those
events are, by definition, random. Thus, in other words, they believe that any amount reasoning
cannot help in predicting the market (Kazi, 2012).
 Forecasting Markets - Fundamental Factors versus Technical Indicators
Fundamental analysis is a method of evaluating securities by attempting to measure the

intrinsic value of a stock. Fundamental analysts study everything from the overall economy
and industry conditions to the financial condition and management of companies. Earnings,
expenses, assets, and liabilities are all important characteristics to fundamental analysts.
On the other hand On the other hand, Technical analysis is the evaluation of securities/assets
by means of studying statistics generated by market activity, such as past prices and volume.
Technical analysts do not attempt to measure a security's intrinsic value but instead use charts
to identify patterns and trends that may suggest what the security will do in the future
(Majakasi, 2018).
 Technical Analysis
Technical analysis is a constantly evolving emerging science because quantitative methods for
evaluating price movement to make trading decisions have now become a dominant part of
current market analysis.
Detecting new trends early using mechanical trading rules in technical analysis is one of the
techniques that professional traders use to make abnormal returns above the benchmark return
of the passive buy-and-hold policy (Noor Azlinna, 2010).
 Rationale of Technical Approach of Forecasting
Most technical chartists concur that much of what we call Technical Analysis today has its
origins in theories first proposed by Dow around the turn of the century. Dow Theory still
forms the cornerstone of the study of technical analysis, even in the face of today’s
sophisticated computer technology, and the proliferation of newer and supposedly better
technical indicators) very clearly indicate that technical analysis is profitable in currency
trading in foreign exchange spot market, which is proven by the fact that all the four currency
pairs, six-time frames and ten indicators under consideration yielded trading profits in foreign
spot market (murphy, 1999). Very clearly indicate that technical analysis is profitable in
currency trading in foreign exchange spot market, which is proven by the fact that all the four
currency pairs, six-time frames and ten indicators under consideration yielded trading profits
in foreign spot market.
“Testing confirm the complementary nature of fundamental and technical analysis by showing
that, although each performs well in isolation, models integrating both have superior
explanatory power.”
In another paper (G. Caginalp, 1998) evidence is provided that traders are influenced by price
behaviour in short term. The results of the study conducted is indicates that the potential exists
for investors to generate excess returns in foreign exchange markets by adopting a momentum
strategy using the moving average rules identified in this paper. It is not at all apparent that
foreign exchange markets operate in an efficient manner and that returns are determined
entirely by fundamental information. In fact, very simple technical rules can generate quite
significant returns beyond those that can be explained by transactions costs or risk (Okunev,
2003).
Trend strategies applied to currencies show the best results over medium-term rebalancing
cycles of 3–6 months. The profitability of technical currency trading has been declining since
the late 1980s. There is evidence that there are lower returns from trend-trading than before,
but the recent trading profits for exotic currencies are still attractive (Kazi, 2012).
 Japanese Candlestick as a Technical Analysis Tool:
Japanese candlestick techniques mentions that Japanese Candlestick technique is a versatile

tool that can be fused with any other technical tool and will help improve any technician's
market analysis (Nison, 2001). Some researchers provide a warning that candlesticks should
never be used alone to make a trading decision. They don’t show enough about the rest of the
price activity, and their interpretation often depends on the trend they are in. One should
determine the overall market position using conventional technical indicators before entering
into a trade. Candlesticks work best at indicating reversal points when the price is overbought
or oversold, in which case they can help with the timing of your entry. In this situation, a Doji
candle indicates that no one is in charge, neither bulls nor bears, so the trend is neutral.
Individual candlesticks such as the hanging man and hammer formations display a wealth of
information and can indicate the probability of a one-day reversal, but there is also the
possibility that they could simply be outliers, so patterns made of multiple candlesticks can
offer confirmation that the reversal is real (Northcott, 2009).
6. Project design And Methodology
This paper uses data from a forex trading platform widely used by foreign exchange traders,
MetaTrader. MetaTrader is a trading tool/platform which has the ability to generate graphs
and charts based on live and historical data. The other tool an inbuilt tool in MetaTrader
called Strategy Tester used for running the back test and processing the data. Since the data
are wide and calculations are based on each item, a trading robot or trading algorithm is used
to trade based on the historical data. The advantage of using data from the trading platform is
that the data comes with the bid-ask spread as per actual prevailing market conditions.
This research has ensured that the data of 4 currencies pairs has been put to the test for a
period of for 2 months (Feb 1st 2019 to March 31st 2019) and the interval between the two
candles are 30 minutes.
The tests are run using trading algorithms. These algorithms can be found on Codebase which
is inbuilt market for algorithmic trading codes. The codes are written in a rule-based way in
order to accurately identify trading signals. The codes are written and published by Vladimir
Karputov.
 The following parameters are available in the testing report:

 Bars — the number of bars generated for the testing symbol;
 Ticks — the number of ticks modelled during testing;
 Symbols — the number of symbols, for which information was requested by the Expert
Advisor during testing;
 Initial Deposit — initial deposit for testing;
 Withdrawal — the amount of money withdrawn by an Expert Advisor during testing. This
field is not displayed if there are no withdrawal operations;
 Total Net profit — the financial result of all trades.
 Gross Profit — the sum of all profitable trades in terms of money;
 Gross Loss — the sum of all losing trades in terms of money;
 Balance Drawdown Absolute — difference between the initial deposit and the minimal
level below initial deposit throughout the whole testing period. Absolute Drawdown =
Initial Deposit - Minimal Balance
 Profit Factor — ratio of the gross profit to the gross loss. A value of one means that these
parameters are equal;
 Recovery Factor — the value reflects the riskiness of the strategy, i.e. the amount of money
risked by the Expert Advisor to make the profit it obtained. It is calculated as the ratio of
gained profit to the maximum drawdown;
 AHPR — arithmetic mean of a trade (change in percent’s). Arithmetic mean of equity
changes per trade. The arithmetic mean usually overestimates the profitability of a trading
system as compared to the geometric mean. If the geometric mean implies the
multiplication of results of each trade, the arithmetic mean just sums them. The value in
percent’s is given in brackets. It is positive if the trading system is profitable. The negative
value means that the system is losing.
 GHPR — geometric mean of a trade (change in percent’s). Geometric mean shows by how
many times the capital changed after each trade in average. The relative equity change is
often a more objective estimation than the expected payoff. Capital change in percent’s is
given in brackets. A negative number in brackets means that on the average the capital is
reduced on each trade.
 Expected Payoff — a statistically calculated value showing the average return of one deal.
Also, it is considered to display the expected return of the next trade;
 Sharpe Ratio — this ratio characterizes efficiency and stability of a strategy. It reflects the
ratio of the arithmetical mean profit for the position holding time to the standard deviation
from it. The risk-free rate, which is the profit gained from the appropriate bank deposit
funds is also taken into account here;
 LR Correlation — linear regression correlation. A balance graph is a broken line, which
can be approximated by a straight line. To find the coordinates of the straight line, the least-
squares method is applied. The resulting straight line is called "linear regression" and
allows estimating the deviation of balance graph points from the linear regression.
Correlation between the balance graph and the linear regression allows to estimate the
degree of the capital variability. The less sharp peaks and troughs on the balance curve, the
closer the parameter value is to 1. Values close to zero mean the random nature of trading.
 LR Standard Error — the standard error of balance deviation from the linear regression.
This index is used to estimate the balance chart deviation from the linear regression in
money terms. It only makes sense to compare systems with similar initial conditions (the
same values of the initial equity). The higher the value, the more balance deviates from a
straight line.
 Margin Level — minimal level of margin in percentage terms registered during testing;
 Z-Score — series testing (the probability of correlation between trades). The series testing
allows to estimate the degree of correlation between trades and evaluate whether the trade
history includes more/less periods of consecutive profits/losses than normal distribution
implies. The detected correlation allows to apply the methods of money management and/or
change the trading system algorithm to maximize profit and/or to remove the dependence.
Both non-finding the real correlation and finding a non-existent correlation between trades
are dangerous. The Z score indicates deviation from normal distribution in the sigma. A
value above 3 indicates that a win will be followed by a loss with the probability of 3 sigma
(99.67%). A value below -3 indicates that a win will be followed by a win with the
probability of 3 sigma (99.67%).
 Total Trades — the total number of trades (deals resulted in fixing a profit/loss);
 (Total Deals) — the total number of deals;
 Short Trades (won %) — number of trades that resulted in profit from selling a financial
instrument, and percentage of profitable short trades;
 Long Trades (won %) — number of trades that resulted in profit from purchasing a financial
instrument, and percentage of profitable long trades;
 Profit Trades (% of total) — the amount of profitable trades and their percentage in the
total trades;
 Loss Trades (% of total) — the amount of losing trades and their percentage in the total
trades;
 Largest profit trade — the largest profit of all profitable trades;
 Largest loss trade — the largest loss of all loss-making trades;
 Average profit trade — the average profit value per a trade (the total of profits divided by
the number of winning trades);
 Average loss trade — the average loss value per a trade (the total of losses divided by the
number of losing trades)
 Maximum consecutive wins ($) — the longest series of winning trades and their total profit;
 Maximum consecutive losses ($) — the longest series of losing trades and their total loss;
 Maximal consecutive profit (count) — the maximum profit of a series of profitable trades
and the amount of profitable trades in this series;
 Maximal consecutive loss (count) — the maximal loss of a series of losing trades and the
number of losing trades in it;
 Average consecutive wins — the average number of winning trades in profitable series;
 Average consecutive losses — the average number of losing trades in losing series.
 Correlation (Profits, MFE) — correlation between returns and the MFE (Maximum
Favourable Excursion, maximum size of a potential profit occurred during the life time of
a position). Each position had its maximal profit and maximal loss between opening and
closing. MFE shows profit in the favourable excursion of the price. Each position has its
result and two parameters — MFE and MAE (Maximum Adverse Excursion, maximum
size of a potential loss occurred during the life time of a position). Thus, each position can
be drawn on a plane where MFE is plotted along the X axis, the result is plotted along the
Y-axis. Results close to MFE mean the most complete use of the favourable price
excursion. A straight line on the graph shows approximation by function Profit= A*MFE
+B. The Correlation (Profits, MFE) value allows to estimate relation between the
profits/losses and the MFE. Values close to 1 mean that trades fit well into the
approximation line. Values close to zero mean weak correlation. MFE characterizes the
ability to realize potential profit.
 Correlation (Profits, MAE) — correlation between results and MAE (Maximum Adverse
Excursion). Each position reached its maximal profit and maximal loss between opening
and closing. MAE shows the loss during the adverse excursion of the price. Each position
has its result and two parameters — MFE and MAE. Thus, each position can be drawn on
a plane where MAE is plotted along the X axis, the return is plotted along the Y axis.
Results close to MAE mean the most complete protection against adverse price excursion.
A straight line on the graph shows approximation by function Profit=A*MAE+B. The
Correlation (Profits, MAE) value allows to estimate relation between the profits/losses and
the MAE. Values close to 1 mean that trades fit well into the approximation line. Values
close to zero mean weak correlation. MAE describes the drawdown during the position
lifetime and best characterizes the use of protective Stop Loss.
 Correlation (MFE, MAE) — correlation between MFE and MAE. It shows correlation
between two rows of characteristics. The ideal value is 1 - we take the maximum profit and
protect the position throughout its lifetime. A value close to zero indicates there is
practically no correlation.
 Minimal position holding time — a minimum amount of time between opening a position
and closing it completely. Complete closing of a position is its full elimination; the
calculated value does not take into account partial closing or position reversal.
 Maximal position holding time — a maximum amount of time between opening a position
and closing it completely.
7. DATA ANALYSIS
USD/CHF
Parameter Moving Average RSI

Bars 1,950 1,950
Ticks 16,23,199 16,23,199
Initial Deposit 1,00,000 1,00,000
Total Net Profit -20,823 1,216
Gross Profit 6,969 3,718
Gross Loss -27,791 -2,502
Profit factor 0.25 1.49
Expected Payoff -359.01 41.92
Sharpe Ratio -0.28 0.15
Total Trades 58 29
Total Deals 116 58
Short Trades (won%) 29 (10.34%) 14 (85.71%)
Long trades 29 (17.24%) 15 (80.00%)
Profit Trades 8 (13.79%) 24 (82.76%)
Loss Trades 50 (86.21%) 5 (17.24%)
Largest profit trade 5,482 517
Largest loss trade -5,495 -504
Average profit trade 871 155
Average loss trade -556 -500.47
Maximum consecution wins 2 (5,482) 11 (973.34)
Maximum consecution loss 18 (-2,818) 1 (-503.80)
Average consecutive wins 1 5
Average consecutive losses 6 1
Minimal position holding time 0:30:00 0:03:14
Maximal position holding time 18:30:00 137:54:59
Average position holding time 4:14:26 19:02:28
The total net profit is higher in the case of RSI, which sits at a value of $1,215 vs. $-20,822
with moving averages, RSI also has a higher profit factor. The number of trades under moving
averages is significantly higher than the RSI. The most significant profit trade and most
significant loss trade in similar neighbourhoods, while the significant variance comes in terms
of average consecutive wins and average consecutive losses which shows that for every 1
profitable trade there are 6 losses for moving average, while in the case of RSI there are 5
profitable trades for every loss-making trade.
Moving average
There is a continuous drop in trading account balance. There is only one outlier trade that
stands out which we know from the previous table is the largest profit trade of $5,482.41. Most
trades were entered during with the European markets and on Friday which means it was
vulnerable to the US market trades which opens a couple of hours later and the
RSI
Balance is the case of RSI has seen a gradual increase, albeit few losses. The profits are quick
and significant profits. While the losses have been a massive draw from the balance. The trade
coincides with Europe and North American markets which come with ample liquidity.
Otherwise, they have been sparse. The frequency of trades is the highest on Monday. Majority
of the profits have been made in under an hour while running longer trades has resulted in
losses. Except for Wednesday, the other days have ended at a net positive.
EUR/USD

Bars 1,950 1,950
Ticks 18,88,393 18,88,393
Initial Deposit 10,000 10,000
Total Net Profit -164 1,012
Gross Profit 116 2,516
Gross Loss -280 -1,504
Expected Payoff -2.65 32.64
Sharpe Ratio -0.28 0.18
Total Trades 62 31
Total Deals 124 62
Short Trades (won%) 31 (19.35%) 15 (93.33%)
Long trades 31 (25.81%) 16 (87.50%)
Profit Trades 14 (22.58%) 28 (90.32%)
Loss Trades 48 (77.42%) 3 (9.68%)
Largest profit trade 25 506
Largest loss trade -30 -503
Average loss trade -6 -501.20
Maximum consecution wins 2 (32.82) 12 (1,112.76)
Maximum consecution loss 17 (-56.14) 1 (-503.00)
Only RSI ended in a favourable position, posting a net profit of $2,515.52 against $-164.43 for
moving average. Similarly, the Sharpe ratio was 0.18 and -0.28, with the positive being for
RSI. RSI makes more with every trade it takes with average profit trade of $89.84 compared
to 8.28 of moving average. The ratio of profit to losing trades is 1:4 for a profit to loss-making
trade on moving average, while the number drastically changes in RSI where for every 7 wins
there is 1 corresponding loss.
Moving average
Moving average on EURUSD has many small profit trades, but few enormous losses, and the
value of the loss trades are higher than the profit. The trades are not concentrated in one
particular time zone, and Friday is the most likely day to enter into a trade. Running trades for
a more extended period is bringing in more losses, and this could suggest that stop losses can
be set up in a way to protect capital.
RSI
The balance graph shows smooth increases but sharp falls, this indicates small profitable trades
but significant and capital eroding loss trade. Surprisingly, in EURUSD trades running for a
longer time will result in profits. The technical tools were most active during the European
markets, while Tuesday and Wednesday are the most likely days for trade.
GPB/USD

Bars 1,950 1,950
Ticks 21,45,135 24,15,135
Total Net Profit -225 -755
Expected Payoff -4.08 -13.25
Sharpe Ratio -0.09 -0.03
Total Trades 55 57
Total Deals 110 114
Short Trades (won%) 23 (21.74%) 27 (70.37%)
Long trades 32 (25.00%) 30 (80.00%)
Profit Trades 13 (23.64%) 43 (75.44%)
Loss Trades 42 (76.36%) 14 (24.56%)
Average loss trade -15 -505
Maximum consecution wins 3 (21.71) 12 (1,374.88)
The highest gross profit of the test was made by the RSI tool on the GBPUSD - $6,317.65
currency pair, but it is also the 2nd most significant gross loss - $-7,073.11, after Moving
average for USDCHF which stands at $20,822.65. While Moving average has posted numbers
in the 3 digit ranges, it has still posted a loss of $-639.28.
Moving average
The initial performance of the tools is quite impressive until a few trades go against it, the
balance is never able to recover back to initial levels. Most winning trades are small trades or
break-even trades, while the average loss is quite significant. European markets are again the
most trading signals generating a market. While the trades are evenly spread out throughout
the week. Quick profits are how this currency pair works. Hence tight stop losses would he
beneficial for strategy.
RSI
Similar to the moving averages graphs, you can see the initial performance of trades is
excellent but the later performance is hampered by some wrong trading call generated.
Taking quick profits seems like a good idea for this tool. Except for Mondays, all other
days have similar trade entries. Profits on Friday seems to be the most likely.
USD/JPY

Bars 1,950 1,950
Ticks 19,95,120 19,95,120
Total Net Profit 65 -933
Expected Payoff 1.19 -35.89
Sharpe Ratio 0.05 -0.12
Total Trades 55 26
Total Deals 110 52
Short Trades (won%) 28 (7.14%) 15 (60.00%)
Long trades 27 (33.33%) 11 (90.91%)
Profit Trades 11 (20.00%) 19 (73.08%)
Loss Trades 44 (80.00%) 7 (26.92%)
Average loss trade -6 -412
Maximum consecution wins 2 (236.21) 8 (807.95)
In the last currency pair, USDJPY we can see only the moving averages making a profit
at $65.21 and RSI algorithms making a loss of $-933.14, even after making a gross profit
of $1,951.27. The profit factor is the case of both is positive, but only moving average’s
ratio is greater than 1 at 1.26. The total number of trades undertaken 55 for moving
averages against 26 for RSI.
Moving average
After the dismal performance at the beginning, there is impressive recovery within a space of 2 trades,
where the balance surpassed the initial balance. The trades are more or less near breakeven levels,
while with the passage of time trades seem to be more favourable. Entries are spread across markets,
and the same can be said about the entries by days.
RSI
The performance straight off the bat seems to be quite weak, the balance never seems to
reach historic levels. A few trades have gone south, but the quantum of the loss is quite high;
hence, it seems to have created a massive deficit in the trading balance. Trade entries are
concentrated in the North American and Asian markets, and the entries by day are well
distributed.
8. Findings
RSI had better results with trading with EURUSD and USDCHF. While moving averages has
a favourable result with USDJPY.
The Sharpe ratio is favourable with the same currency pairs that a profit is shown and on an
average Sharpe ratio of RSI is better than Moving average.
The other finding was that the total loss generated by moving averages for all four pairs is $-
21,146.45; however, RSI generates $ 539.02 profit is a considerable difference. It shows that
RSI produces reliable signals.
9. Learnings
Intricate details about global financial markets, trading, geo-economic, and geopolitical
influence on currencies and the global economy.
• Understanding the most effective technical tool to make profits in the foreign exchange
market.
• Learning the apt tools for particular currency pairs.
• Generating and understanding portfolio reports.
• Managing relationship between research analyst, clients, and market makers.
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Efficiency of using technical analysis tools to predict 1

Efficiency of using technical analysis tools to

In partial fulfilment for the award of the degree

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)

INSTITUTE FOR FUTURE EDUCATION, ENTREPRENEURSHIP

INSTITUTE FOR FUTURE EDUCATION,

BONAFIDE CERTIFICATE (B)

Prof. Gaanyesh Kulkarni Veteran Wing Commander Sudhir Salunkhe

ACADEMIC SUPERVISOR DEAN/DIRECTOR

Sr. No Item Page No

1 Bonafide Certificate - Company Supervisor 2

2 Bonafide Certificate – Academic Supervisor 3

7 Industry and Company profile 13

8 Theoretical Background of study 23

9 Technical analysis and indicator 28

11 Project design and methodology 46

The project, in a nutshell, is to introduce me to the concept of wealth management and

KEY WORDS: Foreign exchange market; Forecast Markets-Fundamental factors

1.1. Purpose of the study

1.2. Objectives of the study

1.4. Limitation of the study

1.5. Methodology adopted

1.1 Types of Market analysis

1.5.1. Technical analysis

1.5.2. Fundamental analysis

1.5.3. Sentimental analysis

2. Industry profile and company profile

2.1.1. Industry profile

S.no. Major player Market share%

1. JP Morgan Chase 12.13%

3. XTX Markets 7.36%

4. Bank of America Merrill Lynch 6.20%

7. Goldman Sachs 5.53%

8. Deutsche Banks 5.41%

9. Standard Charted 4.49%

10. State Street 4.37%

S.No. Currency Symbol Country name

2.1.3. The exotic currency pair are some:

S.No. Currency Symbol Country name

2 USD/MXN United states / Mexico

3 USD/ZAR United states / South Africa

4 USD/SGD United states / Singapore

5 USD/HKD United states / Hong Kong

6 USD/DKK United states / Denmark

7 USD/INR United states / India

8 USD/THB United states / Thailand

2.1.4. Forex market timing as per Indian time

Stock exchange Country Opening timing Closing timing

Japan exchange Japan 5.30 A.M. 11.30 P.M.

London stock UK and Italy 1.30 P.M. 10.00 P.M.

New York stock USA 7.00 P.M. 1.30 A.M.

Australian securities Australia 5.30 A.M. 11.30.M.

2.2. Company profile

J marathon advisory is a financial consultant company which is established in 2012, head

2.2.3. Function Area:

2.2.4. Area of operation

 Do it for me – Advisory referral service

 Help me out – Professional portfolio management.

 Do it myself - Independent investors.

 Training and Education:

2.2.7. MANAGERIAL STRCTURE:

Here the company follows Line organizational structure.

Chennai- Branch Bangalore- Head Hyderabad-