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Chapter 1: Introduction

Topics to be covered

 Introduction of Commodity Market

 Commodity Exchanges in India

 Company profile

 Major compactor’s profile

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Introduction

Commodity markets are markets where raw or primary products are exchanged. These raw
commodities are traded on regulated commodities exchanges, in which they are bought and sold
in standardized contracts.
The modern commodity markets have their roots in the trading of agricultural products. While
wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th
century in the United States, other basic foodstuffs such as soybeans were only added quite
recently in most markets.

The economic impact of the development of commodity markets is hard to overestimate.


Through the 19th century "the exchanges became effective spokesmen for, and innovators of,
improvements in transportation, warehousing, and financing, which paved the way to expanded
interstate and international trade.
Early history of commodity markets
Historically, dating from ancient Sumerian use of sheep or goats, other peoples using pigs, rare
seashells, or other items as commodity money, people have sought ways to standardize and trade
contracts in the delivery of such items, to render trade itself more smooth and predictable.

Commodity money and commodity markets in a crude early form are believed to have originated
in Sumer where small baked clay tokens in the shape of sheep or goats were used in trade. Sealed
in clay vessels with a certain number of such tokens, with that number written on the outside,
they represented a promise to deliver that number. This made them a form of commodity
money - more than an I.O.U. but less than a guarantee by a nation-state or bank. However, they
were also known to contain promises of time and date of delivery - this made them like a
modern futures contract. Regardless of the details, it was only possible to verify the number of
tokens inside by shaking the vessel or by breaking it, at which point the number or terms written
on the outside became subject to doubt. Eventually the tokens disappeared, but the contracts
remained on flat tablets. This represented the first system of commodity accounting.

However, the commodity status of living things is always subject to doubt - it was hard to
validate the health or existence of sheep or goats. Excuses for non-delivery were not unknown,
and there are recovered Sumerian letters that complain of sickly goats, sheep that had already
been fleeced, etc.

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If a seller's reputation was good, individual backers or bankers could decide to take the risk
of clearing a trade. The observation that trust is always required between markets participants
later led to credit money. But until relatively modern times, communication and credit were
primitive.

Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood
and weapons, most of which had standards of quality and timeliness. Considering the many
hazards of climate, piracy, theft and abuse of military fiat by rulers of kingdoms along the trade
routes, it was a major focus of these civilizations to keep markets open and trading in these
scarce commodities. Reputation and clearing became central concerns, and the states which
could handle them most effectively became very powerful empires, trusted by many peoples to
manage and mediate trade and commerce.

Size of the market


The trading of commodities consists of direct physical trading and derivatives trading. The
commodities markets have seen an upturn in the volume of trading in recent years. In the five
years up to 2007, the value of global physical exports of commodities increased by 17% while
the notional value outstanding of commodity OTC (over the counter) derivatives increased more
than 500% and commodity derivative trading on exchanges more than 200%.

The notional value outstanding of banks’ OTC commodities’ derivatives contracts increased
27% in 2007 to $9.0 trillion. OTC trading accounts for the majority of trading in gold and silver.
Overall, precious metals accounted for 8% of OTC commodities derivatives trading in 2007,
down from their 55% share a decade earlier as trading in energy derivatives rose.

Global physical and derivative trading of commodities on exchanges increased more than a third
in 2007 to reach 1,684 million contracts. Agricultural contracts trading grew by 32% in 2007,
energy 29% and industrial metals by 30%. Precious metals trading grew by 3%, with higher
volume in New York being partially offset by declining volume in Tokyo. Over 40% of
commodities trading on exchanges was conducted on US exchanges and a quarter in China.
Trading on exchanges in China and India has gained in importance in recent years due to their
emergence as significant commodities consumers and producers.

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Some of largest Exchange in term of trade volume

Exchange Country
New York Mercantile Exchange USA
Tokyo Commodity Exchange Japan
NYSE Euronext EU
Dalian Commodity Exchange China
Multi Commodity Exchange India

New York Mercantile Exchange (NYMEX)

The New York Mercantile Exchange (NYMEX) is world largest physical commodity futures
exchange, located in New York City. Its two principal divisions are the New York Mercantile
Exchange and Commodity Exchange, Inc (COMEX) which were once separate but are
now merged.

The New York Mercantile Exchange handles billions of dollars worth of energy products,
metals, and other commodities being bought and sold on the trading floor and the overnight
electronic trading computer systems for future delivery. The prices quoted for transactions on the
exchange are the basis for prices that people pay for various commodities throughout the world.

The floor of the NYMEX is regulated by the Commodity Futures Trading Commission,
an independent agency of the United States government.

Tokyo Commodity Exchange (TOCOM)

The Tokyo Commodity Exchange (TOCOM) is a non-profit organization, and regulates trading
of futures contracts and option products of all commodities in Japan. The Tokyo Gold Exchange,
the Tokyo Rubber Exchange, and the Tokyo Textile Exchange merged in 1984 to form TOCOM.

NYSE Euronext

A stock exchange based in New York City, which is considered the largest equities-based
exchange in the world based on total market capitalization of its listed securities. Formerly run as
a private organization, the NYSE became a public entity in 2005 following the acquisition of
electronic trading exchange Archipelago. The parent company of the New York Stock Exchange
is now called NYSE Euronext, following a merger with the European exchange in 2007.

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Also known as the "Big Board", the NYSE relied for many years on floor trading only, using the
open outcry system. Today, more than half of all NYSE trades are conducted electronically,
although floor traders are still used to set pricing and deal in high volume institutional trading.

Dalian Commodities Exchange


The Dalian Exchange was established on February 28, 1993, and has the deepest pool of
liquidity of any commodities exchange in China. It is a non-profit, self-regulating entity with
about 200 members and over 160,000 investors. It also has the largest volume of any
commodities exchange in China. The Dalian Commodities Exchange trades futures contracts on
soybeans and soybean oil, corn, palm oil, soy meal and LLDPE (a petroleum product). The
exchange is ranked as the second-largest trader of agricultural futures in the world.

Multi Commodity Exchange (MCX)

Multi Commodity Exchange (MCX) is an independent commodity exchange based in India. It


was established in 2003 and is based in Mumbai. The turnover of the exchange for the period
April–Dec 2008 was INR 32 trillion. MCX offers futures trading in agricultural commodities,
bullion, ferrous and non-ferrous metals, Pulses, Oils & Oilseeds, energy, Plantations, spices and
other soft commodities.

MCX has also set up in joint venture the National Spot Exchange, a purely agricultural
commodity exchange and National Bulk Handling Corporation (NBHC) which provides bulk
storage and handling of agricultural products.

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Commodity Exchange in India

 Multi Commodity Exchange: - Multi Commodity Exchange of India Ltd (MCX) is a


state-of-the-art electronic commodity futures exchange. The demutualised Exchange set
up by Financial Technologies (India) Ltd (FTIL) has permanent recognition from the
Government of India to facilitate online trading, and clearing and settlement operations
for commodity futures across the country.

Having started operations in November 2003, today, MCX holds a market share of over
80% of the Indian commodity futures market, and has more than 2000 registered
members operating through over 100,000 trader work stations, across India. The
Exchange has also emerged as the sixth largest and amongst the fastest growing
commodity futures exchange in the world, in terms of the number of contracts traded in
2009.

MCX offers more than 40 commodities across various segments such as bullion, ferrous
and non-ferrous metals, and a number of agri-commodities on its platform. The Exchange

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is the world's largest exchange in Silver, the second largest in Gold, Copper and Natural
Gas and the third largest in Crude Oil futures, with respect to the number of futures
contracts traded.

MCX has been certified to three ISO standards including ISO 9001:2000 Quality
Management System standard, ISO 14001:2004 Environmental Management System
standard and ISO 27001:2005 Information Security Management System standard. The
Exchange’s platform enables anonymous trades, leading to efficient price discovery.
Moreover, for globally-traded commodities, MCX’s platform enables domestic
participants to trade in Indian currency.

The Exchange strives to be at the forefront of developments in the commodities futures


industry and has forged strategic alliances with various leading International Exchanges,
including Euronext-LIFFE, London Metal Exchange (LME), New York Mercantile
Exchange, Shanghai Futures Exchange (SHFE), Sydney Futures Exchange, The
Agricultural Futures Exchange of Thailand (AFET), among others. For MCX, staying
connected to the grassroots is imperative. Its domestic alliances aid in improving ethical
standards and providing services and facilities for overall improvement of the commodity
futures market.

There are following commodities are listed in MCX: -

• Bullions : - Gold, Silver and Platinum

• Metals : - Aluminium, Copper, Lead, Mild Steel Ingot, Billets, Nickel, Tin and
Zink

• Energy : - ATF, Brent Crude Oil, Crude Oil, Electricity Monthly & Weekly,
Gasoline, Heating Oil, Imported Thermal Coal and Natural Gas

• Oil & Oil Seeds : - Crude Palm Oil, Kapasia Khalli, Refined Soya Oil and Soya
Bean

• Cereals : - Barley, Wheat and Maize- Feed / Industrial Grade

• Plantations : - Rubber

• Pulses : - Chana

• Weather : - Carbon (CER) and Carbon (CFI)

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• Fiber : - Kapas

• Spices : - Cardamom, Coriander and Turmeric

• Others : - Almond, Gaur Seed, Melted Menthol Flakes, Mentha Oil and Potato
(Agra)

 National Commodity & Derivatives Exchange Limited (NCDEX): - NCDEX is a


professionally managed on-line multi commodity exchange. The shareholders of NCDEX
comprises of large national level institutions, large public sector bank and companies.

NCDEX is a public limited company incorporated on April 23, 2003 under the
Companies Act, 1956. It obtained its Certificate for Commencement of Business on May
9, 2003. It commenced its operations on December 15, 2003.

NCDEX is a nation-level, technology driven de-matualised on-line commodity exchange


with an independent Board of Directors and professional management - both not having
any vested interest in commodity markets. It is committed to provide a world-class
commodity exchange platform for market participants to trade in a wide spectrum of
commodity derivatives driven by best global practices, professionalism and
transparency.

NCDEX is regulated by Forward Markets Commission. NCDEX is subjected to various


laws of the land like the Forward Contracts (Regulation) Act, Companies Act, Stamp Act,
Contract Act and various other legislations.

NCDEX headquarters are located in Mumbai and offers facilities to its members from the
centers located throughout India.

There are following commodities are listed in NCDEX: -

• Agricultural commodities:

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Plantation Products: - Rubber
Spices: - Pepper, Turmeric, Jeera, Chilli, Coriander, Pulses, Chana and Yellow peas
Fibres: - Indian 28.5 mm cotton and V-797 kapas
Cereals: - Wheat, Barley, Maize (Yellow/Red), Maize - Feed /Industrial Grade, Oil and Oil
seeds, Castor seeds, Cotton seed oilcake, Soy bean, Refined soy oil, Soybean meal
(Export), Mustard Seed, Kachhi Ghani Mustard Oil, Crude Palm Oil and RBD
Palmolein
Others: - Guar Seeds, Guar Gum, Gur, Potato, Sugar M and S, Almond and Mentha Oil
• Non agricultural commodities:

Metals: - Steel, Copper, Zinc, Aluminium, Nickel and Lead


Energy: - Crude Oil, Thermal Coal, Brent Crude Oil, Natural Gas, Gasoline and Heating Oil
Precious Metals: - Gold, Silver and Platinum
Others: - CER

Company Profile
Karobaar Commodities Pvt. Ltd.
Karobaar Commodities Private Limited (KCPL) was
initiated to spearhead Exchange based Commodity Trading.
As a member of MCX & NCDEX, KCPL is a trade
facilitator providing the platform to trade in commodities.
Grounded in the Karobaar philosophy, highly skilled and
dedicated professionals strive to offer the client best investment solutions across the country.

The Operating Fabric - Commodities Business

KCPL is the right partner for you if you are keen on tapping opportunities being presented by
this nascent commodities futures market. In terms of the business structure, KCPL caters
Arbitrage desk for catering the needs of the clients who are sitting at commodity Hubs and
Corporate Desk for the HNIs / Corporate catering to special trading strategies as per their
business interests.

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Our business philosophy is to treat each client situation as unique, requiring customized
solutions. Our list of corporate clients reads like a Who’s Who of the Indian Industry and we
have been successful in providing them with practical customized solutions for their
requirements. We are propelled by our group vision and desire to strive tirelessly and aim to be
the best within this category.

Our commodities research team has a rich research experience in the commodities markets. The
specialized services provided by our research team include daily intraday reports, reports on
Agri-commodities & Metals, weekly & medium term market outlook and arbitrage strategies
KCPL offers dedicated Relationship Manager to cater to all your trading related requirements.
To provide the highest possible quality of service, we provide full access to all our products and
services through multiple channels.

The Karobaar edge

• Pan India footprint


• Ethical business practices
• Nationwide presence including Mandi Locations for in-depth and firsthand information
• Offline/Online models
• Powerful research and analytics supported by a pool of highly skilled Research Analyst

We also give personalized services on Insurance (Life & General) & Investments (Mutual Funds
& IPO's) needs, through our Insurance & Investment distribution arm. Our tailor-made
customized solutions are perfect match to different financial objectives. Our distribution network
is backed by in-house back office support to serve our customers promptly.

Karobaar's Business
 Equity Trading
 Commodities Trading
 Investment Advisory
 Portfolio Management Services
 Life Insurance
 IPO

Mission Statement
Our business is people and their financial well-being. Therefore, in the pursuit of our goals, we
will conduct ourselves in accordance with the following precepts:

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• Our clients always come first

• We must provide the highest level of personalized service with integrity

• Assisting our clients in the attainment of their financial objectives is our most
worthy enterprise

• We must communicate with our clients clearly and frequently

• Our advice, investments and services must be of superior quality and without any
biases

• Teamwork - cooperating with and providing assistance and support to our fellow
colleagues & business partners - is fundamental to sustaining a quality work
environment that nurtures opportunities for unparalleled service, personal growth and
job satisfaction

Services Offered

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Equity
In keeping with its tradition of personalized service, Karobaar has set up KCPL EAG to provide
customized and integrated equity solutions to our Investors.

Equity Research is an inherent strength of KCPL. We believe in picking investment


opportunities where the underlying value is higher than the market price. Our trading ideas are
based on technical, news flow and events where risk reward ratio is favorable.

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Most EAG team has highly trained equity professionals, who act as your Equity Advisor. Most
Equity Advisor proactively helps you take informed equity investment decisions and build a
healthy portfolio.

Karobaar offering following services in equity trading in NSE & BSE to investors:

• Intraday trading and trading on delivery

• Future & Option trading

• Portfolio Management Services

• Investment advisory

Commodity
In keeping with its tradition of personalized service, Karobaar has set up KCPL EAG to provide
customized and integrated commodity investment solutions to our Investors.

Commodity Research is an inherent strength of KCPL. We believe in picking investment


opportunities where the underlying value is higher than the market price. Our trading ideas are
based on technical, news flow and events where risk reward ratio is favorable.

Most EAG team has highly trained equity professionals, who act as your Commodity Advisor.
Most Commodity Advisor proactively helps you take informed commodity investment decisions
and build a healthy portfolio.

Karobaar offering following services in commodity trading in MCX & NCDEX to investors:

• Portfolio Management Services

• Investment advisory

Mutual Fund

Karobaar Provides expert advice to its clients for their investments in equity & debt markets
through Mutual Funds.

Our experts advise investors the best investment solutions that suit you and help you to reach
their financial goals. It helps you ascertain your risk profile & guide investors with the right
product mix which reduce their tax liability increase your savings & enhance their wealth.
Weather investors have a conservative, medium or aggressive investment risk appetite; our
experts would guide you to build a portfolio to optimize the return of interest

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Insurance

Karobaar offers all products of Life & General Insurance under one umbrella. Karobaar
comprises of a team of distinguished professionals from insurance, finance and other
management disciplines who have vast business & managerial experience.

Karobaar team evaluates the client's business environment and studies the risk profile; based on
the results of these evaluations, Karobaar team then suggests the most cost effective, integrated
insurance package that is perfectly suited to the client's risk profile.

Karobaar offers you a Peace of Mind by offering various life insurance plans for your unique &
specific needs. Its philosophy is that for every financial problem, there is a solution also. And
they are here to give you complete financial solutions. At the same time we offer you very
Prompt & Reliable Policy related service for enduring relationship.

Following is the glimpse of Life Insurance Plans


• Protection Plans
• Protection Plans
• Child Plans
• Retirement/Pension Plans
• Saving Plans
• NRI Plans

• Health Plans

Major competitors
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Karvy Broking
KARVY, is a premier integrated financial services provider, and ranked
among the top five in the country in all its business segments, services
over 16 million individual investors in various capacities, and provides
investor services to over 300 corporate, comprising the who is who of Corporate India. KARVY covers
the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of
financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities
Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of
equity, IPOs, among others. Karvy has a professional management team and ranks among the best in
technology, operations and research of various industrial segments.

The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small
group of practicing Chartered Accountants who founded the flagship company ... Karvy Consultants
Limited. We started with consulting and financial accounting automation, and carved inroads into the
field ofregistry and share accounting by 1985. Since then, we have utilized our experience and superlative
expertise to go from strength to strength.to better our services, to provide new ones, to innovate, diversify
and in the process, evolved Karvy as one of India's premier integrated financial service enterprise.

ICICI direct.com
ICICI Bank Demat Services boasts of an ever-growing
customer base of over 11.5 lacs account holders. In our
continuous endeavor to offer best of the class services to
our customers we offer the following features:

 E-Instructions: You can transfer securities 24 hours a day, 7 days a week through Internet &
Interactive Voice Response (IVR) at a lower cost. Now with "Speak to transfer", you can also
transfer or pledge instructions through our customer care officer.

 Consolidation Demat Account: Dematerialise your physical shares in various holding patterns
and consolidate all such scattered holdings into your primary demat account at reduced cost.

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 Digitally Signed Statement: Receive your account statement and bill by email.

 Corporate Benefit Tracking: Track your dividend, interest, bonus through your account
statement.

 Mobile Request: Access your demat account by sending SMS to enquire about Holdings,
Transactions, Bill & ISIN details.

 Mobile Alerts: Receive SMS alerts for all debits/credits as well as for any request which cannot
be processed.

India Infoline

The India Infoline Group comprises the holding company,


India Infoline Ltd, which has 4 wholly-owned subsidiaries
engaged in distinct yet complementary businesses which
together offer a whole bouquet of products and services to make your money grow. As on date, the Group
employs 4000 plus employees, in over 60 locations, across India. The corporate structure has evolved to
comply with oddities of the regulatory framework but still beautifully help attain synergy and allow
flexibility to adapt to dynamics of different businesses.

The parent company, India Infoline Ltd owns and manages the web properties www.indiainfoline.com
and www.5paisa.com. It also undertakes research, customized and off-the-shelf. Launched on 11 May
1999, www.indiainfoline.com is India's leading and most comprehensive business and financial
information website. The site provides quality information and analysis - earlier restricted to a few people
- to the common man, absolutely free! The site has met with an overwhelming response and has been
reviewed as the most comprehensive financial content website in India by BBC World - Money Watch,
Business World, Business Line and others. The company also won the Golden Mouse Award in India
Internet World 2000 for the "Best Finance" site. In May 2001, our website was included in the Top 200
Best of the Web list by Forbes Global under the Asia Investing category. We were the only website from
India to be featured in any category. Since then it has been nominated twice to this list. In its last review,
Forbes editors have said, "www.indiainfoline.com is a must read for the investors in South Asia... "

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Sharekhan
Sharekhan is a India's leading stock broker of the retail arm
SSKI (Sri Shantilal Kantiwal,Ishwarlal Pvt. Ltd.), an
organization with over eighty years of experience in the stock
market, With more than 240 share shops in 110 cities, and India's premier online trading destination.
Sharekhan's customer enjoy multi channel access to the stock market, and it offers you trade execution
facilities for each as well as derivatives, on the BSE and the NSE, depository services, commodities
trading on the MCX and NCDEX and most importantly, It bring investment advice tempered by eighty
years of broking experience.

Indiabulls
Indiabulls Financial Services Ltd is listed on the National Stock
Exchange, Bombay Stock Exchange, Luxembourg Stock
Exchange and London Stock Exchange. The market capitalization of Indiabulls is around USD 800
million, and the consolidated net worth of the company is around USD 500 million. Indiabulls and its
group companies have attracted USD 300 million of equity capital in Foreign Direct Investment (FDI)
since March 2000. Some of the large shareholders of Indiabulls are the largest financial institutions of the
world such as Fidelity Funds, Capital International, Goldman Sachs, Merrill Lynch, Lloyd George and
Farallon Capital.

Reliance Money
Reliance Securities Limited is a Reliance Capital
company and part of the Reliance Anil Dhirubhai
Ambani Group. “Reliance Money” is a brand owned
by Reliance Capital Limited. Reliance Securities with the permission of Reliance Capital
Limited uses the “Reliance Money” brand to market its various services.

Reliance Securities endeavors to change the way investors transact in equities markets and avails
services. It provides customers with access to Equity, Derivatives, Portfolio Management
Services, Investment Banking, and Matual Funds & IPOs. It also offers secured online share
trading platform and investment activities in secure, cost effective and convenient manner. To
enable wider participation, it also provides the convenience of trading offline through variety of
means, including Call & Trade, Branch dealing Desk and its network of affiliates.

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Reliance Money through its pan India presence with 6,233 outlets has more than 3.5 million
customers.

Reliance Capital is one of India's leading and fastest growing private sector financial services
companies, and ranks among the top 3 private sector financial services and banking groups, in
terms of net worth.

HDFC Securities
HDFC Securities, a trusted financial service provider promoted by
HDFC Bank and JP Morgan Partners and their associates, is a
leading stock broking company in the country, serving a diverse
customer base of institutional and retail investors.

HDFCsec.com provides investors a robust platform to trade in Equities in NSE and BSE, and
derivatives in NSE. Our website will support you with the highest standards of service,
convenience and hassle-free trading tools.

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Literature Review

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Technical analysis

"Technical analysis refers to the study of market generated data like prices & volume to
determine the future direction of prices movements."

Technical analysis mainly seeks to predict the short term price travels. It is important
criteria for selecting the company to invest. It also provides the base for decision-making
in investment. The one of the most frequently used yardstick to check & analyze
underlying price progress. For that matter a verity of tools was consider.

This Technical analysis is helpful to general investor in many ways. It provides important
& vital information regarding the current price position of the commodity. Technical
analysis involves the use of various methods for charting, calculating & interpreting
graph & chart to assess the performances & status of the price. It is the tool of financial
analysis, which not only studies but also reflecting the numerical & graphical relationship
between the important financial factors.
The focus of technical analysis is mainly on the internal market data, i.e. prices & volume
data. It appeals mainly to short term traders.

It uses charts and computer programs to study the stock's trading volume and price
movements in the hope of identifying a trend. In fact the decision made on the basis of
technical analysis is done only after inferring a trend and judging the future movement of
the stock on the basis of the trend. Technical Analysis assumes that the market is efficient
and the price has already taken into consideration the other factors related to the company
and the industry. It is because of this assumption that many think technical analysis is a
tool, which is effective for short-term investing.

History of Technical Analysis

Technical Analysis as a tool of investment for the average investor thrived in the late
nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed
the Dow Theory. He recognized that the movement is caused by the action/reaction of the
people dealing in stocks rather than the news in itself.

Technical analysis is a method of evaluating securities by analyzing the 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 and other tools to
identify patterns that can suggest future activity. Just as there are many investment styles
on the fundamental side, there are also many different types of technical traders. Some
rely on chart patterns; others use technical indicators and oscillators, and most use some

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combination of the two. In any case, technical analysts' exclusive use of historical price
and volume data is what separates them from their fundamental counterparts. Unlike
fundamental analysts, technical analysts don't care whether a commodity is undervalued
the only thing that matters is a security's past trading data and what information this data
can provide about where the Security might move in the future.

Basic premises of technical analysis

Market prices are determined by the interaction of supply & demand forces. Supply &
demand are influenced by variety of supply & demand affiliated factors both rational &
irrational. These include fundamental factors as well as psychological factors. Barring
minor deviations stock prices tend to move in fairly persistent trends. Shifts in demand &
supply bring about change in trends. This shift s can be detected with the help of charts of
manual & computerized action, because of the persistence of trends & patterns analysis
of past market data can be used to predict future prices behaviors.

Technical analysis is based on three assumptions:


 The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement, ignoring
the fundamental factors of the company. However, technical analysis assumes that, at any
given time, a stock's price reflects everything that has or could affect the company -
including fundamental factors. Technical analysts believe that the company's
fundamentals, along with broader economic factors and market psychology, are all priced
into the stock, removing the need to actually consider these factors separately. This only
leaves the analysis of price movement, which technical theory views as a product of the
supply and demand for a particular stock in the market.

 Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that
after a trend has been established, the future price movement is more likely to be in the
same direction as the trend than to be against it. Most technical trading strategies are
based on this assumption.

 History Tends To Repeat Itself

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Another important idea in technical analysis is that history tends to repeat itself, mainly
in terms of price movement. The repetitive nature of price movements is attributed to
market psychology; in other words, market participants tend to provide a consistent
reaction to similar market stimuli over time. Technical analysis uses chart patterns to
analyze market movements and understand trends. Although many of these charts have
been used for more than 100 years, they are still believed to be relevant because they
illustrate patterns in price movements that often repeat themselves.

Drawbacks / limitations of technical analysis

 Technical analysis does not able to explain the rezones behind the employment or
selection of specific tool of Technical analysis.
 The technical analysis failed to signal an uptrend or downtrend in time.
 The technical analysis must be a self defeating proposition. As more & more
people use, employ it the value of such analysis trends to reduce.

Why we use Technical Analysis?

Technical analysis provides information on the best entry and exit points for a trade. On a
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.

Is Technical Analysis difficult?

 Technical analysis is not difficult, but it requires studying different types of charts
such as the hourly or daily charts, knowing which technical indicators to use and
how to use them.
 Computers and the Internet have made this process much easier. Most brokers
provide basic charts and technical indicators for free or at a very low cost.
 One way to avoid getting frustrated by all the lines, colors, and graphics is to focus
on using only a few indicators that will provide you with the information needed.
Try not to clutter your chart with too much information.

Fundamental vs. Technical Analysis

Technical analysis and fundamental analysis are the two main schools of thought in the
financial markets. As we've mentioned, technical analysis looks at the price movement of
a security and uses this data to predict its future price movements. Fundamental analysis,
on the other hand, looks at economic factors, known as fundamentals.

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Fundamental analysis takes a relatively long-term approach to analyzing the market
compared to technical analysis. While technical analysis can be used on a timeframe of
weeks, days or even minutes, fundamental analysis often looks at data over a number of
years.

The future can be found in the past

If prices are based on investor expectations, then knowing what a security should sell for
(i.e., fundamental analysis) becomes less important than knowing what other investors
expect it to sell for. That's not to say that knowing what a security should sell for isn't
important—it is. But there is usually a fairly strong consensus of a stock's future earnings
that the average investor cannot disprove.

Technical analysis is the process of analyzing a security's historical prices in an effort to


determine probable future prices. This is done by comparing current price action (i.e.,
current expectations) with comparable historical price action to predict a reasonable
outcome. The devout technician might define this process as the fact that history repeats
itself while others would suffice to say that we should learn from the past.

Usually the following tools & instruments are used to do the technical
analysis:

 Price Fields: - Technical analysis is based almost entirely on the analysis of price
and volume. The fields which define a security's price and volume are explained
below.

 Open: - This is the price of the first trade for the period (e.g., the first trade of the
day). When analyzing daily data, the Open is especially important as it is the
consensus price after all interested parties were able to "sleep on it."

 High: - This is the highest price that the security traded during the period. It is the
point at which there were more sellers than buyers (i.e., there are always sellers
willing to sell at higher prices, but the High represents the highest price buyers
were willing to pay).

 Low: - This is the lowest price that the security traded during the period. It is the
point at which there were more buyers than sellers (i.e., there are always buyers
willing to buy at lower prices, but the Low represents the lowest price sellers were
willing to accept).

 Close: - This is the last price that the security traded during the period. Due to its
availability, the Close is the most often used price for analysis. The relationship
between the Open (the first price) and the Close (the last price) are considered

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significant by most technicians. This relationship is emphasized in candlestick
charts.

 Volume: - This is the number of contracts that were traded during the period. The
relationship between prices and volume (e.g., increasing prices accompanied with
increasing volume) is important.

 Open Interest - This is the total number of outstanding contracts (i.e., those that
have not been exercised, closed, or expired) of a future or option. Open interest is
often used as an indicator.

 Bid - This is the price a market maker is willing to pay for a security (i.e., the
price you will receive if you sell).

 Ask - This is the price a market maker is willing to accept (i.e., the price you will
pay to buy the security).

Tools for Technical Analysis

1. Technical chat

In technical analysis, charts are similar to the charts that you see in any business setting. A chart
is simply a graphical representation of a series of prices over a set time frame. For example, a

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chart may show a stock's price movement over a one-year period, where each point on the graph
represents the closing price for each day the stock is traded:

Figure 1 provides an example of a basic chart. It is a representation of the price movements of a


stock over a 1.5 year period. The bottom of the graph, running horizontally (x-axis), is the date
or time scale. On the right hand side, running vertically (y-axis), the price of the security is
shown. By looking at the graph we see that in October 2004 (Point 1), the price of this stock was
around $245, whereas in June 2005 (Point 2), the stock's price is around $265. This tells us that
the stock has risen between October 2004 and June 2005.

Chart Properties

There are several things that you should be aware of when looking at a chart, as these factors can
affect the information that is provided. They include the time scale, the price scale and the price
point properties used.

• The Time Scale: - The time scale refers to the range of dates at the bottom of the chart,
which can vary from decades to seconds. The most frequently used time scales
are intraday, daily, weekly, monthly, quarterly and annually. The shorter the time frame,
the more detailed the chart. Each data point can represent the closing price of the period
or show the open, the high, the low and the close depending on the chart used.

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Intraday charts plot price movement within the period of one day. This means that the
time scale could be as short as five minutes or could cover the whole trading day from
the opening bell to the closing bell.

Daily charts are comprised of a series of price movements in which each price point on
the chart is a full day’s trading condensed into one point. Again, each point on the graph
can be simply the closing price or can entail the open, high, low and close for the stock
over the day. These data points are spread out over weekly, monthly and even yearly time
scales to monitor both short-term and intermediate trends in price movement.

Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in
the movement of a stock's price. Each data point in these graphs will be a condensed
version of what happened over the specified period. So for a weekly chart, each data
point will be a representation of the price movement of the week. For example, if you are
looking at a chart of weekly data spread over a five-year period and each data point is the
closing price for the week, the price that is plotted will be the closing price on the last
trading day of the week, which is usually a Friday.

• The Price Scale and Price Point Properties: - The price scale is on the right-hand side
of the chart. It shows a stock's current price and compares it to past data points. This may
seem like a simple concept in that the price scale goes from lower prices to higher prices
as you move along the scale from the bottom to the top. The problem, however, is in the
structure of the scale itself. A scale can either be constructed in a linear (arithmetic)
or logarithmic way, and both of these options are available on most charting services.

If a price scale is constructed using a linear scale, the space between each price point (10,
20, 30, 40) is separated by an equal amount. A price move from 10 to 20 on a linear scale
is the same distance on the chart as a move from 40 to 50. In other words, the price scale
measures moves in absolute terms and does not show the effects of percent change.

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Figure 2

If a price scale is in logarithmic terms, then the distance between points will be equal in
term of percent change. A price change from 10 to 20 is a 100% increase in the price
while a move from 40 to 50 is only a 25% change, even though they are represented by
the same distance on a linear scale. On a logarithmic scale, the distance of the 100% price
change from 10 to 20 will not be the same as the 25% change from 40 to 50. In this case,
the move from 10 to 20 is represented by a larger space one the chart, while the move
from 40 to 50, is represented by a smaller space because, percentage-wise, it indicates a
smaller move. In Figure 2, the logarithmic price scale on the right leaves the same
amount of space between 10 and 20 as it does between 20 and 40 because these both
represent 100% increases.

Types of chart
There are four main types of charts that are used by investors and traders depending on the
information that they are seeking and their individual skill levels. The chart types are: the line
chart, the bar chart, the candlestick chart and the point and figure chart.

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1) Bar Charts
The highs and lows of a foreign currency are plotted in a diagram and the points are
joined with vertical lines (bars). A small horizontal tick to the left denotes the opening
level while a small horizontal tick to the right represents the closing price of each
interval.

2) Line Chart.
It gives the detailed information about
every aspect. The exchange rates for
each time period are plotted in a diagram and the points are joined. Prices on the y-axis,
time on the x-axis. The line chart chooses for example the closing price of consecutive
time periods, but can also work with daily, official fixings.

The relatively easy handling of line charts is a great advantage. Line charts do not show
price movements within a time period. This can be a problem because important
information for exchange rate analysis can be lost. This problem was remedied with the
development of bar charts that represent a more sophisticated form of line chart.

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3) Candlestick Chart.

A candlestick is black if the closing price is lower than the opening price. A candlestick
is white if the closing price is higher than the opening price.

Japanese Candlestick:
In the 1600s, the Japanese developed a method of technical analysis to analyze the price
of rice contracts. This technique is called candlestick charting. Steven Nison is credited
with popularizing candlestick charting and has become recognized as the leading expert
on their interpretation. Candlestick charts display the open, high, low, and closing prices
in a format similar to a modern-day bar chart, but in a manner that extenuates the
relationship between the opening and closing prices. Candlestick charts are simply a new
way of looking at prices, they don't involve any calculations. Because candlesticks
display the relationship between the open, high, low, and closing prices, they cannot be
displayed on securities that only have closing prices, nor were they intended to be
displayed on securities that lack opening prices.

The interpretation of candlestick charts is based primarily on patterns. The most


popular patterns are explained below.

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 Bullish Patterns

 Long white (empty) line. This is a bullish line. It occurs when prices open near
the low and close significantly higher near the period's high.

 Hammer. This is a bullish line if it occurs after a significant downtrend. If the line
occurs after a significant up-trend, it is called a Hanging Man. A Hammer is
identified by a small real body (i.e., a small range between the open and closing
prices) and a long lower shadow (i.e., the low is significantly lower than the open,
high, and lose). The body can be empty or filled-in.

 Piercing line. This is a bullish pattern and the opposite of a dark cloud cover. The
first line is a long black line and the second line is a long white line. The second
line opens lower than the first line's low, but it closes more than halfway above the
first line's real body.

 Bullish engulfing lines. This pattern is strongly bullish if it occurs after a


significant downtrend (i.e., it acts as a reversal pattern). It occurs when a small
bearish (filled-in) line is engulfed by a large bullish (empty) line.

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 Morning star. This is a bullish pattern signifying a potential bottom. The "star"
indicates a possible reversal and the bullish (empty) line confirms this. The star
can be empty or filled-in.

 Bullish doji star. A "star" indicates a reversal and a doji indicates indecision.
Thus, this pattern usually indicates a reversal following an indecisive period. You
should wait for a confirmation (e.g., as in the morning star, above) before trading a
doji star. The first line can be empty or filled in.

 Bearish Patterns

 Long black (filled-in) line. This is a bearish line. It occurs when prices open near
the high and close significantly lower near the period's low.

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 Hanging Man. These lines are bearish if they occur after a significant uptrend. If
this pattern occurs after a significant downtrend, it is called a Hammer. They are
identified by small real bodies (i.e., a small range was between the open and
closing prices) and a long lower shadow (i.e., the low was significantly lower than
the open, high and close). The bodies can be empty or filled-in.

 Dark cloud cover. This is a bearish pattern. The pattern is more significant if the
second line's body is below the center of the previous line's body (as illustrated).

 Bearish engulfing lines. This pattern is strongly bearish if it occurs after a


significant uptrend (i.e., it acts as a reversal pattern). It occurs when a small bullish
(empty) line is engulfed by a large bearish (filled-in) line.

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 Evening star. This is a bearish pattern signifying a potential top. The "star"
indicates a possible reversal and the bearish (filled-in) line confirms this. The star
can be empty or filledin.

 Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this
pattern usually indicates a reversal following an indecisive period. You should
wait for a confirmation (e.g., as in the evening star illustration) before trading a
doji star.

 Shooting star. This pattern suggests a minor reversal when it appears after a rally.
The star's body must appear near the low price and the line should have a long
upper shadow.

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 Reversal Patterns
 Long-legged doji. This line often signifies a turning point. It occurs when the
open and close are the same, and the range between the high and low is relatively
large.

 Dragon-fly doji. This line also signifies a turning point. It occurs when the open
and close are the same, and the low is significantly lower than the open, high, and
closing prices.

 Gravestone doji. This line also signifies a turning point. It occurs when the open,
close, and low are the same, and the high is significantly higher than the open,
low, and closing prices.

 Star. Stars indicate reversals. A star is a line with a small real body that occurs
after a line with a much larger real body, where the real bodies do not overlap. The
shadows may overlap.

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 Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this
pattern usually indicates a reversal following an indecisive period. You should
wait for a confirmation (e.g., as in the evening star illustration) before trading a
doji star.

 Neutral Patterns

 Spinning tops. These are neutral lines. They occur when the distance between the
high and low, and the distance between the open and close, are relatively small.

 Doji. This line implies indecision. The security opened and closed at the same
price. These lines can appear in several different patterns. Double doji lines (two

35 | P a g e
adjacent doji lines) imply that a forceful move will follow a breakout from the
current indecision.

 Harami ("pregnant" in English). This pattern indicates a decrease in


momentum. It occurs when a line with a small body falls within the area of a
larger body. In this example, a bullish (empty) line with a long body is followed
by a weak bearish (filledin) line. This implies a decrease in the bullish momentum.

 Harami cross. This pattern also indicates a decrease in momentum. The pattern is
similar to a harami, except the second line is a doji (signifying indecision).

Example

36 | P a g e
4) Point and Figure Charts

The point and figure chart is not well known or used by the average investor but it has
had a long history of use dating back to the first technical traders. This type of chart
reflects price movements and is not as concerned about time and volume in the
formulation of the points. The point and figure chart removes the noise, or insignificant
price movements, in the stock, which can distort traders' views of the price trends. These
types of charts also try to neutralize the skewing effect that time has on chart analysis.

37 | P a g e
When first looking at a point and figure chart, you will notice a series of Xs and Os. The
Xs represent upward price trends and the Os represent downward price trends. There are
also numbers and letters in the chart; these represent months, and give investors an idea
of the date. Each box on the chart represents the price scale, which adjusts depending on
the price of the stock: the higher the stock's price the more each box represents. On most
charts where the price is between $20 and $100, a box represents $1, or 1 point for the
stock. The other critical point of a point and figure chart is the reversal criteria. This is
usually set at three but it can also be set according to the chartist's discretion. The reversal
criteria set how much the price has to move away from the high or low in the price trend
to create a new trend or, in other words, how much the price has to move in order for a
column of Xs to become a column of Os, or vice versa. When the price trend has moved
from one trend to another, it shifts to the right, signaling a trend change.

Trends in Technical Analysis


One of the most important concepts in technical analysis is that of trend. The meaning in
finance isn't all that different from the general definition of the term - a trend is really
nothing more than the general direction in which a security or market is headed. Take a
look at the chart below:

Isn't it hard to see that the trend is upward. However, it's not always this easy to see a
trend:

38 | P a g e
There are lots of ups and downs in this chart, but there isn't a clear indication of which
direction this security is headed.

Chart by MetaStock Copyright ® 2006


lnvertopedia.com
[36]

A More Formal Definition

Unfortunately, trends are not always easy to see. In other words, defining a trend goes
well beyond the obvious. In any given chart, you will probably notice that prices do not
tend to move in a straight line in any direction, but rather in a series of highs and lows. In
technical analysis, it is the movement of the highs and lows that constitutes a trend. For
example, an uptrend is classified as a series of higher highs and higher lows, while a
downtrend is one of lower lows and lower highs.

39 | P a g e
It is an example of an uptrend. Point 2 in the chart is the first high, which is determined
after the price falls from this point. Point 3 is the low that is established as the price falls
from the high. For this to remain an uptrend each successive low must not fall below the
previous lowest point or the trend is deemed a reversal.

Types of Trend

There are three types of trend:


 Uptrend
 Downtrend
 Sideways/Horizontal Trends

As the names imply, when each successive peak and trough is higher, it's referred to as an
upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is
little movement up or down in the peaks and troughs, it's a sideways or horizontal trend.
If you want to get really technical, you might even say that a sideways trend is actually
not a trend on its own, but a lack of a well-defined trend in either direction. In any case,
the market can really only trend in these three ways: up, down or nowhere.

Trend Lengths

Along with these three trend directions, there are three trend classifications. A trend of
any direction can be classified as a long-term trend, intermediate trend or a short-term
trend. In terms of the stock market, a major trend is generally categorized as one lasting
longer than a year. An intermediate trend is considered to last between one and three
months and a near-term trend is anything less than a month. A long-term trend is
composed of several intermediate trends, which often move against the direction of the
major trend. If the major trend is upward and there is a downward correction in price
movement followed by a continuation of the uptrend, the correction is considered to be
an intermediate trend. The short-term trends are components of both major and
intermediate trends. Take a look a Figure 4 to get a sense of how these three trend lengths
might look.

40 | P a g e
Chart by M eta Stock Copyright ©
2006 lnvestopedia.com
When analyzing trends, it is important that the chart is constructed to best reflect the type
of trend being analyzed. To help identify long-term trends, weekly charts or daily charts
spanning a five-year period are used by chartists to get a better idea of the long-term
trend. Daily data charts are best used when analyzing both intermediate and short-term
trends. It is also important to remember that the longer the trend, the more important it is;
for example, a one-month trend is not as significant as a five-year trend.

Trend Lines

A trend line is a simple charting technique that adds a line to a chart to represent the trend
in the market or a stock. Drawing a trend line is as simple as drawing a straight line that
follows a general trend. These lines are used to clearly show the trend and are also used
in the identification of trend reversals.

An upward trend line is drawn at the lows of an upward trend. This line represents the
support the stock has every time it moves from a high to a low. Notice how the price is
propped up by this support. This type of trend line helps traders to anticipate the point at
which a stock's price will begin moving upwards again. Similarly, a downward trend line
is drawn at the highs of the downward trend. This line represents the resistance level that
a stock faces every time the price moves from a low to a high.

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Channels

A channel, or channel lines, is the addition of two parallel trend lines that act as strong
areas of support and resistance. The upper trend line connects a series of highs, while the
lower trend line connects a series of lows. A channel can slope upward, downward or
sideways but, regardless of the direction, the interpretation remains the same. Traders
will expect a given security to trade between the two levels of support and resistance until
it breaks beyond one of the levels, in which case traders can expect a sharp move in the
direction of the break. Along with clearly displaying the trend, channels are mainly used
to illustrate important areas of support and resistance.

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A descending channel on a stock chart; the upper trend line has been placed on the highs
and the lower trend line is on the lows. The price has bounced off of these lines several
times, and has remained range-bound for several months. As long as the price does not
fall below the lower line or move beyond the upper resistance, the range-bound
downtrend is expected to continue.

The Importance of Trend

It is important to be able to understand and identify trends so that you can trade with
rather than against them. Two important sayings in technical analysis are "the trend is
your friend" and "don't buck the trend," illustrating how important trend analysis is for
technical traders

Importance of Volume

Volume is simply the number of shares or contracts that trade over a given period of
time, usually a day. The higher the volume, the more active the security. To determine
the movement of the volume (up or down), chartists look at the volume bars that can
usually be found at the bottom of any chart. Volume bars illustrate how many shares have
traded per period and show trends in the same way that prices do.

43 | P a g e
Why
Volume Is
Important?

Volume is
an important
aspect of
technical
analysis
because it is
used to
confirm
trends and
chart
patterns.
Any price
movement up or down with relatively high volume is seen as a stronger, more relevant
move than a similar move with weak volume. For example, that a stock jumps 5% in one
trading day after being in a long downtrend. Is this a sign of a trend reversal? This is
where volume helps traders. If volume is high during the day relative to the average daily
volume, it is a sign that the reversal is probably for real. On the other hand, if the volume
is below average, there may not be enough conviction to support a true trend reversal.
Volume should move with the trend. If prices are moving in an upward trend, volume
should increase (and vice versa). If the previous relationship between volume and price
movements starts to deteriorate, it is usually a sign of weakness in the trend. For example,
if the stock is in an uptrend but the up trading days are marked with lower volume, it is a
sign that the trend is starting to lose its legs and may soon end. When volume tells a
different story, it is a case of divergence, which refers to a contradiction between two
different indicators. The simplest example of divergence is a clear upward trend on
declining volume.

Volume and Chart Patterns

The other use of volume is to confirm chart patterns. Patterns such as head and shoulders,
triangles, flags and other price patterns can be confirmed with volume, a process which
we'll describe in more detail later in this tutorial. In most chart patterns, there are several
pivotal points that are vital to what the chart is able to convey to chartists. Basically, if
the volume is not there to confirm the pivotal moments of a chart pattern, the quality of
the signal formed by the pattern is weakened.

44 | P a g e
Volume Precedes Price

Another important idea in technical analysis is that price is preceded by volume. Volume
is closely monitored by technicians and chartists to form ideas on upcoming trend
reversals. If volume is starting to decrease in an uptrend, it is usually a sign that the
upward run is about to end. Now that we have a better understanding of some of the
important factors of technical analysis, we can move on to charts, which help to identify
trading opportunities in prices movements.

Chart patterns

A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a
sign of future price movements. Chartists use these patterns to identify current trends and
trend reversals and to trigger buy and sell signals. In the first section of this tutorial, we
talked about the three assumptions of technical analysis, the third of which was that in
technical analysis, history repeats itself. The theory behind chart patterns is based on this
assumption. The idea is that certain patterns are seen many times, and that these patterns
signal a certain high probability move in a stock. Based on the historic trend of a chart
pattern setting up a certain price movement, chartists look for these Patterns to identify
trading opportunities. While there are general ideas and components to every chart
pattern, there is no chart pattern that will tell you with 100% certainty where a security is
headed. This creates some leeway and debate as to what a good pattern looks like, and is
a major reason why charting is often seen as more of an art than a science. There are two
types of patterns within this area of technical analysis, reversal and continuation. A
reversal pattern signals that a prior trend will reverse upon completion of the pattern. A
continuation pattern, on the other hand, signals that a trend will continue once the pattern
is complete. These patterns can be found over charts of any timeframe. In this section, we
will review some of the more popular chart patterns.

 Head and Shoulders


This is one of the most popular and reliable chart patterns in technical analysis.
Head and shoulders is a reversal chart pattern that when formed, signals that the
security is likely to move against the previous trend. As you can see, there are two
versions of the head and shoulders chart pattern. Head and shoulders top (shown
on the left) is a chart pattern that is formed at the high of an upward movement
and signals that the upward trend is about to end. Head and shoulders bottom, also
known as inverse head and shoulders (shown on the right) is the lesser known of
the two, but is used to signal a reversal in a downtrend.

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Head and shoulders top is shown on the left. Head and shoulders bottom, or
inverse head and shoulders, is on the right. Both of these head and shoulders
patterns are similar in that there are four main parts: two shoulders, a head and a
neckline. Also, each individual head and shoulder is comprised of a high and a
low. For example, in the head and shoulders top image shown on the left side, the
left shoulder is made up of a high followed by a low. In this pattern, the neckline
is a level of support or resistance. Remember that an upward trend is a period of
successive rising highs and rising lows. The head and shoulders chart pattern,
therefore, illustrates a weakening in a trend by showing the deterioration in the
successive movements of the highs and lows.

 Cup and Handle


A cup and handle chart is a bullish continuation pattern in which the upward trend
has paused but will continue in an upward direction once the pattern is confirmed.

The price pattern forms what


looks like a cup, which is
preceded by an upward trend.
The handle follows the cup formation and is formed by a generally
downward/sideways movement in the security's price. Once the price movement

46 | P a g e
pushes above the resistance lines formed in the handle, the upward trend can
continue.

 Double Tops And Bottoms


This chart pattern is another well-known pattern that signals a trend reversal -it is
considered to be one of the most reliable and is commonly used. These patterns
are formed after a sustained trend and signal to chartists that the trend is about to
reverse. The pattern is created when a price movement tests support or resistance
levels twice and is unable to break through. This pattern is often used to signal
intermediate and long-term trend reversals.

A double top pattern is shown on the left, while a double bottom pattern is
shown on the right. In the case of the double top pattern, the price movement has
twice tried to move above a certain price level. After two unsuccessful attempts at
pushing the price higher, the trend reverses and the price heads lower. In the case
of a double bottom (shown on the right), the price movement has tried to go lower
twice, but has found support each time. After the second bounce off of the support,
the security enters a new trend and heads upward.

 Triangles
Triangles are some of the most well-known chart patterns used in technical
analysis. The three types of triangles, which vary in construct and implication, are
the symmetrical triangle, ascending and descending triangle. These chart patterns
are considered to last anywhere from a couple of weeks to several months.

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The symmetrical is a pattern in which two trend lines converge toward each other.
This pattern is neutral in that a breakout to the upside or downside is a
confirmation of a trend in that direction. In an ascending triangle, the upper trend
line is flat, while the bottom trend line is upward sloping. This is generally thought
of as a bullish pattern in which chartists look for an upside breakout. In a
descending triangle, the lower trend line is flat and the upper trend line is
descending. This is generally seen as a bearish pattern where chartists look for a
downside breakout.

 Flag And Pennants


These two short-term chart patterns are continuation patterns that are formed when
there is a sharp price movement followed by a generally sideways price
movement. This pattern is then completed upon another sharp price movement in
the same direction as the move that started the trend. The patterns are generally
thought to last from one to three weeks.

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There is little difference between a pennant and a flag. The main difference
between these price movements can be seen in the middle section of the chart
pattern. In a pennant, the middle section is characterized by converging trend lines,
much like what is seen in a symmetrical triangle. The middle section on the flag
pattern, on the other hand, shows a channel pattern, with no convergence between
the trend lines. In both cases, the trend is expected to continue when the price
moves above the upper trend line

 Wedge

The wedge chart pattern can be either a continuation or reversal pattern. It is


similar to a symmetrical triangle except that the wedge pattern slants in an upward
or downward direction, while the symmetrical triangle generally shows a sideways
movement. The other difference is that wedges tend to form over longer periods,
usually between three and six months.

The fact that wedges are classified as both continuation and reversal patterns can
make reading signals confusing. However, at the most basic level, a falling wedge
is bullish and a rising wedge is bearish. We have a falling wedge in which two
trend lines are converging in a downward direction. If the price was to rise above

49 | P a g e
the upper trend line, it would form a continuation pattern, while a move below the
lower trend line would signal a reversal pattern

 Triple Tops And Bottoms


Triple tops and triple bottoms are another type of reversal chart pattern in chart
analysis. These are not as prevalent in charts as head and shoulders and double
tops and bottoms, but they act in a similar fashion. These two chart patterns are
formed when the price movement tests a level of support or resistance three times
and is unable to break through; this signals a reversal of the prior trend.

Confusion can form with triple tops and bottoms during the formation of the
pattern because they can look similar to other chart patterns. After the first two
support/resistance tests are formed in the price movement, the pattern will look
like a double top or bottom, which could lead a chartist to enter a reversal position
too soon.

 Rounding Bottom
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal
pattern that signals a shift from a downward trend to an upward trend. This pattern
is traditionally thought to last anywhere from several Months to several years.

50 | P a g e
A rounding bottom chart pattern looks similar to a cup and handle pattern but
without the handle. The long-term nature of this pattern and the lack of a
confirmation trigger, such as the handle in the cup and handle, make it a difficult
pattern.

SUPPORT AND RESISTANCE

Once you understand the concept of a trend, the next major concept is that of support and
resistance. You'll often hear technical analysts talk about the ongoing battle between the
bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is
revealed by the prices a security seldom moves above (resistance) or below (support).

51 | P a g e
Support is the price level through which a stock or market seldom falls (illustrated by the
blue arrows). Resistance, on the other hand, is the price level that a stock or market
seldom surpasses (illustrated by the Red Arrows).
These support and resistance levels are seen as important in terms of market psychology
and supply and demand. Support and resistance levels are the levels at which a lot of
traders are willing to buy the stock (in the case of a support) or sell it (in the case of
resistance). When these trend lines are broken, the supply and demand and the
psychology behind the stock's movements is thought to have shifted, in which case new
levels of support and resistance likely be established.

Round Numbers and Support and Resistance


One type of universal support and resistance that tends to be seen across a large number
of securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be
important in support and resistance levels because they often represent the major
psychological turning points at which many traders will make buy or sell decisions.
Buyers will often purchase large amounts of stock once the price starts to fall toward a
major round number such as $50, which makes it more difficult for shares to fall below
the level. On the other hand, sellers start to sell off a stock as it moves toward a round
number peak, making it difficult to move past this upper level as well. It is the increased
buying and selling pressure at these levels that makes them important points of support
and resistance and, in many cases, major psychological points as well.

Role Reversal

52 | P a g e
Once a resistance or support level is broken, its role is reversed. If the price falls below a
support level, that level will become resistance. If the price rises above a resistance level,
it will often become support. As the price moves past a level of support or resistance, it is
thought that supply and demand has shifted, causing the breached level to reverse its role.
For a true reversal to occur, however, it is important that the price make a strong move
through either the support or resistance.

For example, as you can see, the dotted line is shown as a level of resistance that has
prevented the price from heading higher on two previous occasions (Points 1 and 2).
However, once the resistance is broken, it becomes a level of support (shown by Points 3
and 4) by propping up the price and preventing it from heading lower again. Many traders
who begin using technical analysis find this concept hard to believe and don't realize that
this phenomenon occurs rather frequently, even with some of the most well-known
companies. For example, this phenomenon is evident on the Wal-Mart Stores Inc.
(WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes from
a strong level of support to a level of resistance.

53 | P a g e
In almost every case, a stock will have both a level of support and a level of resistance
and will trade in this range as it bounces between these levels.

The Importance of Support and Resistance


Support and resistance analysis is an important part of trends because it can be used to
make trading decisions and identify when a trend is reversing. Support and resistance
levels both test and confirm trends and need to be monitored by anyone who uses
technical analysis. As long as the price of the share remains between these levels of
support and resistance, the trend is likely to continue. It is important to note, however,
that a break beyond a level of support or resistance does not always have to be a reversal.

For example, if prices moved above the resistance levels of an upward trending channel,
the trend have accelerated, not reversed. This means that the price appreciation is
expected to be faster than it was in the channel. Being aware of these important support
and resistance points should affect the way that you trade a stock. Traders should avoid
placing orders at these major points, as the area around them is usually marked by a lot of
volatility. If you feel confident about making a trade near a support or resistance level, it
is important that you follow this simple rule: do not place orders directly at the support or
resistance level. This is because in many cases, the price never actually reaches the whole
number, but flirts with it instead. So if you're bullish on a stock that is moving toward an
important support level, do not place the trade at the support level. Instead, place it above
the support level, but within a few points. On the other hand, if you are placing stops or
short selling, set up your trade price at or below the level of support.

Summary of charts

54 | P a g e
Method Mode/ Principle

Chart Line chart Individual prices are joined by a line


analysis
Bar chart Highs and lows of an interval are joined by a vertical
line; opening and dosing prices are denoted by horizontal
ticks

Candle-Chart Price differences between opening and closing prices are


marked by differently colored candle-bars

Point-&- Crosses and circles are plotted in the chart as soon as


Figure-Chart. prices changed by a pre-defined amount

Indicators

 Accumulation Distribution
 Accumulative Swing Index
 Advance Decline Line
 Adaptive Moving Average
 Average Directional Movement Index (ADX)
 Andrews Pitchfork
 Arms Index (TRIN)
 Aroon Indicator and Oscillator
 Bollinger Bands
 Chaikin Oscillator
 Commodity Channel Index (CCI)
 Commodity Select Index
 Detrended Price Oscillator
 Directional Movement Index (DMI)
 Ease of Movement
 Elliott Wave
 Exponential Moving Average (EMA)
 Exponential Ribbons
 Fibonacci Retracements
 Fibonacci Arcs
 Fibonacci Fans
 Fibonacci Time Extensions
 Gann Theory
 Herrick Payoff Index
 Keltner Channel
 Linear Regression Channel
 Linear Regression Curve

55 | P a g e
 Linear Regression Line
 Moving Average Convergence Divergence (MACD)
 Moving Averages
 Market Thrust
 Mass Index
 McClellan Oscillator
 Momentum
 Money Flow Index (MFI)
 Moving Average Envelopes
 On Balance Volume (OBV)
 Open Interest
 Parabolic SAR
 Point and Figure Charting
 Price Channels
 Price Oscillator
 Price Volume Trend
 Rate of Change
 Relative Strength Index (RSI)
 Simple Moving Average
 Standard Error Bands
 Stochastic RSI
 Stochastics Fast and Slow
 Swing Index
 Time Series Forecast
 Triangular Moving Average
 Triple Exponential Average (TRIX)
 Typical Price (Pivot Point) Moving Average
 Ulcer Index
 Ultimate Oscillator
 VIX & VXN Volatility Index
 Volatility Indicator
 Volume
 Volume Accumulation
 Volume Oscillator
 Volume Rate of Change
 Weighted Moving Average
 Williams %R
 Zig Zag

o Volume

Volume is one of the most important technical analysis tools to learn and understand how to
apply to price movements. Volume increases every time a buyer and seller transact their
stock or futures contract. If a buyer buys one share of stock from a seller, then that one share
is added to the total volume of that particular stock. Volume has two major premises:

56 | P a g e
1. When prices rise or fall, an increase in volume is strong confirmation that the rise
or fall in price is real and that the price movement had strength.
2. When prices rise or fall and there is a decrease in volume, then this is interpreted
as being a weak price move, because the price move had very little strength and interest
from traders.

The chart below of Gold futures shows a strong trend being confirmed by a strong increase in
volume:

The chart above of Gold shows that when prices began making new highs, volume increased.
As the price of Gold increased, more and more buyers (buying pressure) jumped on board.

Likewise, if prices are heading downward and are making new lows and volume increases,
the sellers are becoming more and more interested as price falls (increased selling pressure).

o Moving Average

The Simple Moving Average is arguably the most popular technical analysis tool used by
traders. The Simple Moving Average (SMA) is used mainly to identify trend direction, but
is commonly used to generate buy and sell signals. The SMA is an average, or in statistical
speak - the mean. An example of a Simple Moving Average is presented below:

The prices for the last 5 days were 25, 28, 26, 24, 25. The average would be
(25+28+26+26+27)/5 = 25.6. Therefore, the SMA line below the last days price of 27 would

57 | P a g e
be 26.4. In this case, since prices are generally moving higher, the SMA line of 26.4 would
be acting as support (see: Support & Resistance).

The chart below of the Dow Jones Industrial Average exchange traded fund (DIA) shows a
20-day Simple Moving Average acting as support for prices.

Figger: Moving Average Acting as Support - Buy Signal

When price is in an uptrend and subsequently, the moving average is in an uptrend, and the
moving average has been tested by price and price has bounced off the moving average a few
times (i.e. the moving average is serving as a support line), then buy on the next pullbacks
back to the Simple Moving Average.

A Simple Moving Average can serve as a line of resistance as the chart of the DIA shows:

58 | P a g e
Moving Average Acting as Resistance Sell Signal

At times when price is in a downtrend and the moving average is in a downtrend as well, and
price tests the SMA above and is rejected a few consecutive times (i.e. the moving average is
serving as a resistance line), then buy on the next rally up to the Simple Moving Average.

The examples above have been only using one Simple Moving Average; however, traders
often use two or even three Simple Moving Averages.

Moving Average Crossovers

Moving average crossovers are a common way traders use Moving Averages. A crossover
occurs when a faster Moving Average (i.e. a shorter period Moving Average) crosses either
above a slower Moving Average (i.e. a longer period Moving Average) which is considered
a bullish crossover or below which is considered a bearish crossover.

The chart below of the S&P Depository Receipts Exchange Traded Fund (SPY) shows the
50-day Simple Moving Average and the 200-day Simple Moving Average; this Moving
Average pair is often looked at by big financial institutions as a long range indicator of
market direction:

59 | P a g e
How the long-term 200-day Simple Moving Average is in an uptrend; this is a signal that the
market is quite strong. Generally, a buy signal is established when the shorter-term 50-day
SMA crosses above the 200-day SMA and contrastly, a sell signal is indicated when the 50-
day SMA crosses below the 200-day SMA.

In the chart above of the S&P 500, both buy signals would have been extremely profitable,
but the one sell signal would have caused a small loss. Keep in mind, that the 50-day, 200-
day Simple Moving Average crossover is a very long-term strategy.

For those traders that want more confirmation when they use Moving Average crossovers,
the 3 Simple Moving Average crossover techniques could be used. An example of this is
shown in the chart below of Wal-Mart (WMT) stock:

60 | P a g e
The 3 Simple Moving Average method is usually interpreted as follows:

The first crossover of the quickest SMA (in the example above, the 10-day SMA) across the
next quickest SMA (20-day SMA) acts as a warning that prices are reversing trend; however,
usually a buy or sell order is not placed yet.

The second crossover of the quickest SMA (10-day) and the slowest SMA (50-day) finally
triggers the buy or sell signal.

There are numerous variants and methodologies for using the 3 Simple Moving Average
crossover method, some are provided below:

A more conservative approach is to wait until the middle SMA (20-day) crosses over the
slower SMA (50-day); but this is basically a two SMA crossover technique, not a three SMA
technique.

A money management technique of buying a half size when the quick SMA crosses over the
next quickest SMA and then the other half when the quick SMA crosses over the slower
SMA.

Instead of halves, buy or sell one-third of a position when the quick SMA crosses over the
next quickest SMA, another third when the quick SMA crosses over the slow SMA, and the
last third when the second quickest SMA crosses over the slow SMA.

A Moving Average crossover technique that uses 8+ Moving Averages (exponential) is the
Moving Average Exponential Ribbon Indicator.

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Moving Average crossovers are important tools in a trader’s toolbox. In fact crossovers are
included in the most popular technical indicators including the Moving Average
Convergence Divergence (MACD) indicator (see: MACD). Other moving averages deserve
careful consideration in a trading plan:

Exponential Moving Average (EMA)

The Exponential Moving Average (EMA) weighs current prices more heavily than past
prices. This gives the Exponential Moving Average the advantage of being quicker to
respond to price fluctuations than a Simple Moving Average; however, that can also be
viewed as a disadvantage because the EMA is more prone to whipsaws (i.e. false signals).

The chart below of eBay (EBAY) stock shows the difference between a 10-day Exponential
Moving Average (EMA) and the 10-day regular Simple Moving Average (SMA):

The main thing to notice is how much quicker the EMA responds to price reversals; whereas
the SMA lags during periods of reversal.

The chart below of the Nasdaq 100 exchange traded fund (QQQQ) shows the difference
between moving average crossovers (see: Moving Average Crossovers) buy and sell signals
with a EMA and a SMA:

62 | P a g e
As the chart above of the QQQQ's illustrates, even though EMA's are quicker to respond to
price movement, EMA's are not necessarily faster to give buy and sell signals when using
moving average crossovers.

Also note that the concept illustrated in the chart above with Exponential Moving Average
crossovers is the concept behind the wildly popular Moving Average Convergence
Divergence (MACD) indicator; (see: MACD).

Since Exponential Moving Averages weigh current prices more heavily than past prices, the
EMA is viewed by many traders as quite superior to the Simple Moving Average; however,
every trader should weigh the pros and the cons of the EMA and decide in which manner
they will be using moving averages.

Nevertheless, Moving Averages remain the most popular and arguably the most effective
technical analysis indicator out on the market today.

Weighted Moving Average

The Weighted Moving Average places more importance on recent price moves; therefore, the
Weighted Moving Average reacts more quickly to price changes than the regular Simple
Moving Average (see: Simple Moving Average). A basic example (3-period) of how the
Weighted Moving Average is calculated is presented below:

Prices for the past 3 days have been $5, $4, and $8.

63 | P a g e
Since there are 3 periods, the most recent day ($8) gets a weight of 3, the second recent day
($4) receives a weight of 2, and the last day of the 3-periods ($5) receives a weight of just
one.

The calculation is as follows: [(3 x $8) + (2 x $4) + (1 x $5)] / 6 = $6.17

The Weighted Moving Average value of 6.17 compares to the Simple Moving Average
calculation of 5.67. Note how the large price increase of 8 that occured on the most recent
day was better reflected in the Weighted Moving Average calculation.

The chart below of Wal-Mart stock illustrates the visual difference between a 10-day
Weighted Moving Average and a 10-day Simple Moving Average:

Adaptive Moving Average

Adaptive Moving Averages changes its sensitivity to price fluctuations. The Adaptive
Moving Average becomes more sensitive during periods when price is moving in a certain
direction and becomes less sensitive to price movement when price is volatile.

The chart below of the E-mini Nasdaq 100 Futures contract shows the difference between an
Exponential Moving Average which weights current prices more heavily than past prices and
the Adaptive Moving Average which changes sensitivity based on price volatility:

64 | P a g e
The advantage of the Adaptive Moving Average is show above in the e-mini chart in the
center where price became directionless and choppy. During that period the Adaptive
Moving Average maintained a straight line appearance; whereas, the Exponential Moving
Average moved with the choppiness of prices. However, when price trended, like on the far
right of the e-mini chart above, the Adaptive Moving Average kept up with the Exponential
Moving Average.

Typical Price Moving Average

The Typical Price Moving Average combines the Pivot Point concept and the Simple
Moving Average. The Pivot Point calculation is shown below:

Pivot Point = (High + Low + Close) / 3

The calculated Pivot Point number is then inputted into the regular Simple Moving Average
equation; rather than the input of the closing price, the Pivot Point calculation is used.

The chart below of the mini-Dow Jones Industrial Average Futures contract shows the slight
difference between a 10-day Simple Moving Average and a 10-day Typical Price Moving
Average:

65 | P a g e
The Typical Price attempts to give a more real representation of where price has been by
incorporating the high and low price into the most often used closing price. The Typical Price
is consequently seen as a more pure Simple Moving Average; nevertheless, as can be
referenced by the chart above of the mini-Dow Future, there is not much difference between
either Moving Average.

Buy and sell signals for the Typical Price Moving Average indicator are discussed in depth
on the Simple Moving Average indicator pages (see: Simple Moving Average).

Triangular Moving Average

The Triangular Moving Average is a Simple Moving Average that has been averaged
again (i.e. averaging the average); this creates an extra smooth Moving Average line.

The chart below of the E-mini Nasdaq 100 Futures contract shows the relation between a 10-
day Simple Moving Average and a 10-day Triangular Moving Average:

66 | P a g e
Generally, simple moving averages are smooth, but the re-averaging makes the Triangular
Moving Average even smoother and more wavelike.

o Average Directional Index

The Average Directional Movement Index (ADX) technical analysis indicator describes
when a market is trending or not trending. When combined with the DMI+ plus and DMI-
minus the ADX can generate buy and sell signals.

However, the main purpose of the ADX is to determine whether a stock, future, or currency
pair is trending or is in a trading range. Determining which mode a market is in is helpful
because it can guide a trader to which other technical analysis indicators to use.

The chart of the E-mini Russell 2000 Index Futures contract below shows an excellent
example of the ADX in action:

67 | P a g e
ADX Shows Trend Strength

The direction that the ADX moves doesn't depend upon the direction of the underlying
stock. All the ADX shows is the trend strength.

Strong upward trend of stock = Increasing ADX

Strong downward trend = Increasing ADX

As can be referenced from the chart of the E-mini Russell 2000 Index Futures contract above,
when the e-mini future was rising in a strong upward trend, the ADX indicator was rising.

When the e-mini futures contract moved into a non-directional consolidation phase, the ADX
decreased.

ADX is a Great Complement to Other Technical Indicators

The ADX is so popular because determining whether a stock, commodity, or currency


market is trending or not trending can help a trader avoid the pitfalls of some indicators.

Interpreting the ADX

It is important to re-emphasize that the direction of price doesn't affect the ADX; it is the
strength of the stock, futures, or currency's trend that matters.

68 | P a g e
The E-mini Russell 2000 Futures contract, but here the e-mini future is in a downtrend, a
strong downtrend. The ADX is rising even though the price of the e-mini future is falling.

Interpreting the ADX

Below 20: Non-trending market.

Crosses above 20: Signal that a trend might be emerging; consider initiating buy or sell short
in direction of prevailing stock, future, or currency price movement.

Between 20 & 40: If ADX is increasing between 20 and 40, then it is further confirmation of
emerging trend. Buy or short sell in the direction of the current market direction.

Above 40: Very strong trend.

Crosses above 50: Extremely strong trend.

Crosses above 70: "Power Trend"; very rare occurrence

Multi Commodity Exchange of India (MCX)

Multi Commodity Exchange of India Ltd (MCX) is a state-of-the-art electronic commodity


futures exchange. The demutualised Exchange set up by Financial Technologies (India) Ltd
(FTIL) has permanent recognition from the Government of India to facilitate online trading, and
clearing and settlement operations for commodity futures across the country.

69 | P a g e
Having started operations in November 2003, today, MCX holds a market share of over 80% of
the Indian commodity futures market, and has more than 2000 registered members operating
through over 100,000 trader work stations, across India. The Exchange has also emerged as the
sixth largest and amongst the fastest growing commodity futures exchange in the world, in terms
of the number of contracts traded in 2009.

MCX offers more than 40 commodities across various segments such as bullion, ferrous and
non-ferrous metals, and a number of agri-commodities on its platform. The Exchange is the
world's largest exchange in Silver, the second largest in Gold, Copper and Natural Gas and the
third largest in Crude Oil futures, with respect to the number of futures contracts traded.

MCX has been certified to three ISO standards including ISO 9001:2000 Quality Management
System standard, ISO 14001:2004 Environmental Management System standard and ISO
27001:2005 Information Security Management System standard. The Exchange’s platform
enables anonymous trades, leading to efficient price discovery. Moreover, for globally-traded
commodities, MCX’s platform enables domestic participants to trade in Indian currency.

Gold

Gold is the oldest precious metal known to man and for thousands of years it has been valued as
a global currency, a commodity, an investment and simply an object of beauty.

Contracts available for trading:


February 2010 contract Immediately after approval of the Commission to 5th
February of the contract year

April 2010 contract Immediately after approval of the Commission to 5th April of
the contract year
June 2010 contract 16th June of the previous year to 5th June of the contract
year
August 2010 contract 16th August of the previous year to 5th August of the contract
year
October 2010 contract 16th October of the previous year to 5th October of the
contract year
December 2010 contract 16th December of the previous year to 5th December of the
contract year
Trading unit 1 kg
Quotation / Base value 10 grams

70 | P a g e
Silver

Contracts available for trading


March 2010 contract Immediately after the approval of the Commission to 5th
March of the contract year
May 2010 contract 16th May of the previous year to 5th May of the contract
year
July 2010 contract 16th July of the previous year to 5th July of the contract
year
September 2010 contract 16th September of the previous year to 5th September of
the contract year
December 2010 contract 16th December of the previous year to 5th December of
the contract year
Trading unit 30 kg
Quotation/Base Value 1 kg

71 | P a g e
Chapter 3: Research
Methodology & Design

72 | P a g e
Research Methodology
Objectives of study:

 To observe the trend of Gold and Silver of MCX.

 To identify the entry and exit point from Gold and Silver trading.

 To maximize the gain and minimize the loss in trading of Gold and Silver in MCX.

 To predict the future movement of Gold and Silver.

 To make intraday and positional trading profitable.

Scope of research:

Nature of Research: - The study is descriptive in nature. It is descriptive as it aimed to describe


the trend of gold and silver in MCX Exchange.

Data collection: There are used both type of data primary as well as secondary. The primary
data is collected by direct observation of Trading Terminal during training period. The secondary
data is collected form website of MCX i.e. www.mcxindia.com.
Interpretation of data:

There are following tools are used to interpretation of data:

 Pivot point: - Pivot point is used to calculate the supports and resistances by using
previous day high, low, closing price and current day’s opening price. The support and
resistance are calculated by using following formulas:

o Pivot Point = (High + Low + Closing Price) / 3


o Resistance 1 = (2 X Pivot Point) - Low
o Resistance 2 = Pivot Point + High - Low
o Resistance 3 = High + 2 X (Pivot Point - Low)
o Support 1 = (2 X Pivot Point) - High
o Support 2 = Pivot Point - High + Low
o Support 3 = Low - 2 X (High – Pivot Point)

73 | P a g e
 Candlestick Chart: - Candlestick Chart is used with other indicators such as moving
averages and ADX etc. to identify the trend.

 Moving average: - Moving Average is used to identify the trend and buying & selling
signals. There are two moving averages are used. These are: -

o Simple moving average of 20 periods

o Exponential Moving Average of 50 Periods

The crossover of Simple Moving Average (20) and Exponential Moving Average (50) are
used to identify buying & selling signals. These moving average are also used as support
and resistance.

 Average Directional Index (ADX): - ADX is used to determine whether a stock, future,
or currency pair is trending or is in a trading range and to know whether the current trend
of commodity is either strong or weak or a new trend is emerging.

 Identify the pattern of trend movement: - There are various trend pattern are identified
and described by many technical analyst such as ‘head and shoulder’, double top or
bottom, rounding bottom and triangle etc. are used with their interpretation explained by
them.

 Drafting on chart: Drafting is to be done to identify the trend, chart trend pattern and to
set movement channel, the support and resistance.

Limitation of the study

 High volatility of market.

 Shortage of time.

74 | P a g e
 Absence of software for intraday chat of MCX: I have to use COMEX software (GCI
with live support which is easily available on internet) because MCX commodity rates
movement follows the movement in COMEX.

 ‘The Value of Indian Rupees against US Dollar’ limits the impact of movement in
COMEX on movement in MCX scripts.

 High impact of volatility of Indian Rupees against US Dollar.

Chapter 4: Data Analysis &


Interpretation

75 | P a g e
Gold (5 Oct 2010)

76 | P a g e
SUPPORTS AND RESISTANCES FOR GOLD(05-Oct-10)
The Supports and Resistances are obtained by PIVOT POINT
ANALYSIS,

DAILY WEEKLY MONTHLY


For Next Day For Week Ending For Month Ending
(06-Aug-10) (30-Aug-10)
RESISTANCE 1 18,020.67 18,296.67 18,690.67
RESISTANCE 2 18,077.33 18,629.33 19,417.33

77 | P a g e
RESISTANCE 3 18,175.67 18,899.67 19,884.67
SUPPORT 1 17,865.67 17,693.67 17,496.67
SUPPORT 2 17,767.33 17,423.33 17,029.33
SUPPORT 3 17,710.67 17,090.67 16,302.67

MOVING AVG. DETAILS FOR GOLD(05-Oct-10)

Simple Exponenti
Average
Date Days Moving al Moving High Low
Volume
Average Average

30-07-
1 17964.0 17964.0 17979.0 17824.0 28828
2010

18359.0 17756.0
26-07-
5 17953.2 18029.4 (26-07- (29-07- 16392
2010
2010) 2010)

18480.0 17556.0
20-07-
10 18168.2 18206.6 (21-07- (29-07- 9826
2010
2010) 2010)

18591.0 17756.0
08-07-
20 18308.25 18332.9 (13-07- (29-07- 5869
2010
2010) 2010)

19058 17756.0
26-06-
30 18433.8 18463.97 (28-06- (29-07- 4492
2010
2010) 2010)

19285 17756.0
04-06-
50 18591.86 18603.06 (08-06- (29-07- 3327
2010
2010) 2010)

78 | P a g e
Silver (5 Sep 2010)

SUPPORTS AND RESISTANCES FOR SILVER(04-Sep-10)


The Supports and Resistances are obtained by PIVOT POINT
ANALYSIS,

DAILY WEEKLY MONTHLY


For Next Day For Week Ending For Month Ending

79 | P a g e
(06-Aug-10) (30-Aug-10)
RESISTANCE 1 28882.0 29,240.67 29,498.0
RESISTANCE 2 29128.0 29,832.33 30,347.0
RESISTANCE 3 29467.0 30,439.67 31,083.0
SUPPORT 1 28297.0 28,041.67 27,913.0
SUPPORT 2 27958.0 27,434.33 27,177.0
SUPPORT 3 27712.0 26,842.67 26,328.0

MOVING AVG. DETAILS FOR SILVER(04-Sep-10)

Simple Exponenti
Average
Date Days Moving al Moving High Low
Volume
Average Average

30-07-
1 28649.0 28649.0 28790.0 28205.0 1750
2010

29225.0 28026.0
26-07-
5 28561.0 28659.8 (26-07- (28-07- 1633
2010
2010) 2010)

29254.0 28026.0
20-07-
10 28752.6 28745.0 (23-07- (28-07- 1403
2010
2010) 2010)

29340.0 28026.0
08-07-
20 28815.05 28828.1 (15-07- (28-07- 1316
2010
2010) 2010)

30115.0 28026.0
26-06-
30 28918.0 28958.03 (28-06- (28-07- 1232
2010
2010) 2010)

30228.0 28026.0
04-06-
50 29115.58 29119.34 (21-06- (28-07- 787
2010
2010) 2010)

80 | P a g e
Chapter 5: Major Findings &
Discussion

81 | P a g e
Major findings
 Gold (05 Oct 2010):

o Till now Gold have down trend.

o Gold price have 1st support at Rs.17865/ 10gm and 2ed support at Rs.17767/10gm and
3ed support at Rs.17710 /10gm.

o Gold price have 1st resistance at Rs.18020/10gm and 2ed resistance at Rs. 18077/10gm
and 3ed resistance at Rs.18175/10gm.

o In chart Gold price is moving in a downward channel and at closing of 31-07-2010; it is


standing close to support line plotted on chart. At that level traders will go for fresh sale
and due to this selling pressure, Gold might breakout the channel resistance line and give
recovery.

 Silver (05 Sep 2010):

o Till now Silver have down trend.

o Silver price have 1st support at Rs.28297/Kg and 2ed support at Rs.27958/Kg and 3ed
support at Rs.27712/Kg.

o Silver price have 1st resistance at Rs.28882/Kg and 2ed resistance at Rs. 29128/Kg and
3ed resistance at Rs.29467/Kg.

o In chart Silver price is moving in a downward channel and at closing of 31-07-2010; it is


standing close to support line plotted on chart. At that level traders will go for fresh sale
and due to this selling pressure, Silver might breakout the channel resistance line and
give recovery.

82 | P a g e
Chapter 6: Conclusion &
Recommendations

83 | P a g e
Annexure

84 | P a g e
Price of Gold (5 Oct) during June & July
Date Open(Rs) High(Rs) Low(Rs Close(Rs)
)
1-Jun-10 18580 18883 18523 18784
2-Jun-10 18628 18914 18628 18705
3-Jun-10 18650 18652 18469 18524
4-Jun-10 18456 18837 18342 18815
5-Jun-10 18873 18889 18838 18876
7-Jun-10 18891 19069 18701 19039
8-Jun-10 18981 19285 18981 19069
9-Jun-10 18982 19077 18785 18869
10-Jun-10 18800 18975 18640 18677
11-Jun-10 18651 18880 18642 18848
12-Jun-10 18830 18837 18811 18822
14-Jun-10 18780 18833 18543 18643
15-Jun-10 18631 18785 18631 18747
16-Jun-10 18750 18870 18682 18712
17-Jun-10 18820 18905 18749 18866
18-Jun-10 18850 18975 18790 18927
19-Jun-10 18881 18940 18881 18926
21-Jun-10 18865 18945 18602 18638
22-Jun-10 18666 18760 18630 18720
23-Jun-10 18767 18830 18675 18780
24-Jun-10 18756 18928 18675 18867
25-Jun-10 18918 18949 18852 18869
26-Jun-10 18829 18893 18829 18891
28-Jun-10 18939 19058 18736 18791
29-Jun-10 18808 18960 18768 18933
30-Jun-10 18941 18964 18851 18926
1-Jul-10 18919 18950 18603 18621
2-Jul-10 18610 18633 18493 18590
3-Jul-10 18621 18626 18600 18619
5-Jul-10 18651 18651 18565 18591
6-Jul-10 18554 18620 18358 18430
7-Jul-10 18460 18485 18362 18457
8-Jul-10 18499 18550 18304 18396
9-Jul-10 18395 18507 18360 18478
10-Jul-10 18495 18504 18485 18500
12-Jul-10 18500 18532 18420 18450

85 | P a g e
Date Open(Rs) High(Rs) Low(Rs Close(Rs)
)
1-Jun-10 29464 29827 29423 29689
2-Jun-10 29633 29810 29181 29327
3-Jun-10 29343 29345 28724 28837
13-Jul-10
4-Jun-10 18443
28790 18591
28796 18438
28273 18533
28355
14-Jul-10
5-Jun-10 18515
28364 18588
28600 18425
28362 18471
28582
15-Jul-10
7-Jun-10 18515
28621 18566
29326 18465
28189 18488
29269
16-Jul-10
8-Jun-10 18484
29302 18509
29660 18350
29167 18404
29520
17-Jul-10
9-Jun-10 18414
29520 18430
29520 18406
29112 18415
29219
19-Jul-10
10-Jun-10 18391
29199 18428
29498 18293
28867 18348
29299
20-Jul-10
11-Jun-10 18375
29250 18435
29583 18285
29075 18423
29323
21-Jul-10
12-Jun-10 18412
29280 18480
29305 18396
29254 18437
29281
22-Jul-10
14-Jun-10 18403
29232 18436
29490 18301
29185 18368
29233
23-Jul-10
15-Jun-10 18392
29199 18462
29555 18313
29188 18343
29445
24-Jul-10
16-Jun-10 18309
29464 18348
29558 18309
29261 18345
29309
26-Jul-10
17-Jun-10 18343
29341 18359
29700 18207
29230 18229
29577
27-Jul-10
18-Jun-10 18210
29516 18240
30106 17853
29516 17865
30002
28-Jul-10
19-Jun-10 17882
30009 17904
30031 17777
29975 17854
29996
29-Jul-10
21-Jun-10 17835
29950 17905
30228 17756
29400 17854
29504
30-Jul-10
22-Jun-10 17849
29624 17979
29794 17824
29424 17964
29685
31-Jul-10
23-Jun-10 17940
29633 17973
29825 17931
29250 17937
29376
24-Jun-10 29441 29675 29104 29564
25-Jun-10 29655 29900 29505 29850
26-Jun-10 29867 29898 29800 29822
28-Jun-10 29933 30115 29505 29611
Price of
29-Jun-10 29580 29650 29380 29573
30-Jun-10 29587 29703 29475 29607 Silver (5
1-Jul-10 29518 29611 28756 28795 Sep) during
2-Jul-10 28805 28950 28514 28673 June & July
3-Jul-10 28750 28816 28745 28773
5-Jul-10 28800 28862 28654 28711
6-Jul-10 28680 28919 28505 28764
7-Jul-10 28758 28945 28525 28910
8-Jul-10 28950 29049 28582 28734
9-Jul-10 28770 28950 28622 28830
10-Jul-10 28898 28920 28851 28899
12-Jul-10 28882 28905 28654 28811
13-Jul-10 28800 29156 28748 29044
14-Jul-10 29031 29299 28962 29135
15-Jul-10 29186 29340 29065 29170
16-Jul-10 29130 29200 28666 28786
17-Jul-10 28800 28810 28766 28793
19-Jul-10 28739 28829 28486 28573
20-Jul-10 28620 28668 28461 28630
21-Jul-10 28626 28840 28595 28797
22-Jul-10 28777 29120 28625 29022
23-Jul-10 29060 29254 29060 29129
24-Jul-10 29175 29175 29094 29143
26-Jul-10 29160 29225 28950 29169 86 | P a g e
27-Jul-10 29149 29149 28393 28458
28-Jul-10 28452 28477 28026 28258
29-Jul-10 28300 28354 28134 28271