Вы находитесь на странице: 1из 36

SUMMER INTERNSHIP PROJECT REPORT

ON
ANALYSIS ON FOREX AND STOCK MARKET
AT

FINI BRAIN Services Pvt Ltd


A Project Report Submitted In Partial Fulfilment of the Requirements
For The Award of the

POST GRADUATE DIPLOMA IN MANAGEMENT


TO

RAMAIAH INSTITUTE OF MANAGEMENT


BY

Puppala Aruna
REG.NO. 181238
BATCH 2018-20

Under the guidance of


Dr. Arul Senthil Kumar

RAMAIAH INSTITUTE OF MANAGEMENT

NEW BEL ROAD, BANGALORE-560054

July 2019

RAMAIAH INSTITUTE OF MANAGEMENT


Page 1 of 36
COMPANY PROFILE
“FINIBRAIN” a leading financial service oriented firm provides a wide range of
services in global investing and investment management. They offer financial
solutions to a substantial and diversified client base. Their investments span a
wide range of companies creating revenues for companies and individuals alike.

They seek to create positive economic impact and long term value for the
investors, companies we invest in and the people associated with us. They focus
on delivering attractive risk adjusted returns along with capital preservation. They
deliver solutions which unlock value and propel growth of an investor.

FINIBRAIN is founded by Thasleem Basha Shaik in the year 2016. They have
built the firm on a strong foundation of intellectual capital and integrity ensuring
substantial growth for investors.

They provide a client- oriented approach to articulate goals and priorities. Their
strategy is to understand the companies and their operations with in-depth
analysis and they critically evaluate company’s potential in generating positive
total returns.
They focus on diversification of investments reducing the overall risk of a
portfolio by managing funds focussed on high yield bonds, distressed debt.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 2 of 36
They are accredited for their specialized credit expertise and leveraged value
additive financial solutions. Their expertise continuously engaged in intensive
credit research and micro monitoring of investments.

Their intellectual team of experts serve on a broad range of financial issues and
structured solutions.

Investment Services
They analyse the financial report of a company and employ accounting ratios to
identify an undervalued security. They work on the basis of value investing,
where assets believed to be undervalued are bought and overvalued assets are
sold. Investments cycles are always supported with market leading research &
analytics. They provide broad range of wealth management services and portfolio
decisions are always guided by timely and strategic perspectives. They offer
service of share transfer agent, stock broking, commodity trading and mutual fund
investments. Investors, particularly novices are trained well and advised to adopt
a definite investment strategy to diversify their portfolio.

Insurance Services
Their insurance solutions are designed by a team of insurance experts who
understand the need of insurer’s financial strength to with stand events that may
be either anticipated or unforeseen. They seek to deliver bespoke, customised
investments solutions tailored to each client based on their unique need and risk
profile.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 3 of 36
Banking Related Services
Their team of professionals cater the needs of client base including firms,
companies, legal entities and individuals seeking banking related works. Their
services include Providing Project reports ,Due Diligence Service ,Techno
Economic viability studies ,Opinion reports on Major Suppliers ,Conducting
Stock and Legal Audits for the clients ,Valuation of stocks and properties
,Syndication of loans.

Advisory & Consultancy Services


They provide advisory and consultancy services under security laws of the
country, Intellectual property rights Act, Competition Act, Companies Act,
Transfer of Property Act etc., They act as Nodal Agency in the country and
outside the country for Public Sector Units, Trusts etc. They also act as
consultants, advisors, representatives, distributors, dealers, signatories, attorneys,
agents, arbitrators, conciliators, auctioneers and solicitors. A complete gamut of
financial service is offered at their end for the substantial investors, speculators,
corporate, non corporate includes partnership firms, societies, trusts and
proprietary concerns.

VISION
They consistently strive to achieve superior performance through innovation,
uniqueness and excellence. Their core belief is to create exciting exploration in
the financial market being the most reliable financial service facilitator meeting
the expectations of the investor.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 4 of 36
MISSION
In the spirit of excellence, integrity and dedication they are committed to provide
outstanding level of support and service to enhance their business globally.

INDUSTRY PROFILE

INTRODUCTION
A financial market is a market in which people trade financial securities and
derivatives such as futures and options at low transaction costs. Securities include
stocks and bonds, and precious metals. Financial Market refers to a marketplace,
where creation and trading of financial assets, such as shares, debentures, bonds,
derivatives, currencies, etc. take place. It plays a crucial role in allocating limited
resources, in the country’s economy. It acts as an intermediary between the savers
and investors by mobilising funds between them. It facilitates mobilisation of
savings and puts it to the most productive uses.
It helps in determining the price of the securities. The frequent interaction
between investors helps in fixing the price of securities, on the basis of their
demand and supply in the market. It provides liquidity to tradable assets, by
facilitating the exchange, as the investors can readily sell their securities and
convert assets into cash.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 5 of 36
It saves the time, money and efforts of the parties, as they don’t have to waste
resources to find probable buyers or sellers of securities. Further, it reduces cost
by providing valuable information, regarding the securities traded in the financial
market.The financial market may or may not have a physical location, i.e. the
exchange of asset between the parties can also take place over the internet or
phone also.
In most industrialized countries, a substantial part of financial wealth is not
managed directly by savers, but through a financial intermediary, which implies
the existence of an agency contract between the investor (the principal) and a
broker or portfolio manager (the agent). Therefore, delegated brokerage
management is arguably one of the most important agency relationships
intervening in the economy, with a possible impact on financial market and
economic developments at a macro level.

BOMBAY STOCK EXCHANGE:


This stock exchanges, Mumbai, popularity known as ―BSE was established in
1875 as ―The native share and stock brokers associations, as a voluntary non-
profit making association. It has an evolved over the years into its status as the
premiere stock exchanges in the country. It may be noted that the stock exchanges
the oldest one in Asia, even older than the Tokyo Stock Exchanges, which was
founded in 1878. The exchanges, while providing an efficient and transparent
market for trading in securities, upholds the interests Of the investors and ensures
redressed of their grievances, whether against the companies or its own members
brokers.

It also strives to educate and enlighten the investors by making available


necessary informative inputs and conducting investor‘s education programmers.
A governing board comprises of elected directors, 2 SEBI nominees, 7 public
representatives and an executive director is the apex body, which decides the
policies and regulates the affairs of the exchanges.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 6 of 36
The executive director as the chief executive officer is responsible for the day
today administration of the exchanges. The average daily turnover of the
exchange during the year 2000-01 (April-March) was Rs 3984.19 crores and
average numbers of daily trades 5.69 Lakhs However the averages daily turnover
of the exchanges during the year 2001-2002 has declined to Rs. 1224.10 crores
and number of average daily trades 5.69 Lakhs.
The average daily turnover of the exchanges during the year 2001-2003 has
declined and number of average daily trades during the period is also decreased .
The Ban on all deferral products like BLESS AND ALBM in the Indian capital
markets by SEBI with effect from July 2, 2001, abolition of account period
settlements, introduction of compulsory rolling settlements in all scripts trades on
the exchanges. With effect from dec31, 2001 etc. have adversely impacted the
liquidity and consequently there is a considerable decline in the daily turnover at
the exchanges

NATIONAL STOCK EXCHANGE


The NSE was incorporated is now 1992 with an equity capital of Rs 25 crores.
The international securities consultancy (ISC) of Hong Kong has helped in setting
up NSE.

ISE has prepared the details business plans and installation of hardware and
software system. The promotion for NSE were financial institutions, insurances
companies, banks and SEBI capital markets Ltd, infrastructure leasing and
financial services Ltd and stock holding corporation Ltd. It has been set up to
strengthen the move towards professionalization of the capital market as well as
provide nation wide securities trading facilities to investors.
NSE is not an exchange in the traditional sense where broker own and manage
the exchanges. A two tier administrative set up involving a company board and a

RAMAIAH INSTITUTE OF MANAGEMENT


Page 7 of 36
governing aboard of the exchanges is envisaged. NSE is a national market for
shares PSU bonds, debentures and government securities since infrastructure and
trading facilities are provided

The stock exchanges in India, under the overall supervision of the regulatory
authority, the Securities and Exchange Board of India (SEBI), provide a trading
platform, where buyers and sellers can meet to transact in securities. The trading
platform provided by NSE is an electronic one and there is no need for buyers
and sellers to meet at a physical location to trade. They can trade through the
computerized trading screens available with the NSE trading members or the
internet based trading facility provided by the trading members of NSE

PRIMARY MARKET
The Primary Market, also known as a New Issue Market, is where new securities
are issued – it is part of the capital market. Corporations, national and local
governments, and other public sector institutions can get financing through the
sale of new stock or bond issues through the primary market. Put simply, the
primary market creates new securities and offers them for sale to the public.

All companies require capital for their operations. This capital (money) can be in
the form of equity or debt. Equity is the stock capital (share capital) of a company.
Debt consists of all the loans taken by the business. In an initial public offering
(IPO) and follow-on public offering (FPO), shares are sold in the primary market.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 8 of 36
The money earned from the sale of securities in a primary market goes directly
to the issuing company .The primary market is vital for both the capital market
and the economy as a whole – it is where capital formation takes place.

SECONDARY MARKET
The secondary market is where investors buy and sell securities they already own.
It is what most people typically think of as the "stock market," though stocks are
also sold on the primary market when they are first issued.
SECONDARY AND PRIMARY MARKET – DIFFERENCE
When a company issues IPO, it sells its stock in the primary market. After the
IPO, the shares start to trade in the stock markets .Proceeds from the sale of shares
in the primary market go to the issuing company. In the secondary market,
proceeds go the investors selling the security.

Small investors, usually, don’t buy the securities in the primary market because
issuing company sells in lots, which requires a big investment. In the secondary
market, however, investors can buy any number of stocks they want.
Price of securities doesn’t fluctuate in the primary market, unlike in the stock
market. Issuing company hire investment banks to manage their IPO in the
primary market. In the secondary market, investors hire brokers to carry their
trade.

MAJOR DIFFERENCES BETWEEN STOCK AND FOREX TRADING


Trading times and open market hours
One of the most important differences between stock and Forex trading relates to
the trading hours of the markets. Forex is an OTC (over-the-counter) market,
which means that currencies can be traded around the clock during Forex trading
sessions.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 9 of 36
The main trading sessions in the Forex market include the New York session, the
London session, the Tokyo session, and the Sydney session. The Forex market is
closed only during weekends, but the difference in time zones between the
mentioned trading sessions makes it possible to trade currencies even in the
midnight hours should you choose.
The stock market, on the other hand, sticks to the open market hours of a stock
exchange. Most stock exchanges are open from 8am to 5pm local time, making it
impossible to trade stocks outside these hours. When a trading opportunity on the
stock market occurs after the market closes, you need to wait for the stock market
to open the next morning to place your trade. This is the first point for Forex in
our trading equities vs Forex battle. Tradeable instruments

TRADEABLE INSTRUMENTS
Next on the list of major differences between Forex and stocks is the number of
tradeable instruments. There are only eight major currencies on Forex: the US
dollar, the euro, the British pound, the Swiss franc, the Japanese yen, the
Canadian dollar, the Australian dollar, and the New Zealand dollar. Even if we
expand this list to cover all G10 currencies, including the Norwegian and Swedish
krona, there are still significantly fewer currencies on the Forex market compared
to the stock market.
This means traders can focus on a few currencies instead of hundreds of stocks.
Obviously, it’s far easier to follow a few currencies compared to dozens of
hundreds of stocks. While stock traders in this case could have more trading
opportunities as they have more instruments at their disposal, it’s almost
impossible to keep track of so many stocks at thje same time. That’s why stock

RAMAIAH INSTITUTE OF MANAGEMENT


Page 10 of 36
traders focus on entire industries instead, such as the car industry or tech, and
look for trade setups in selected stocks.

Commissions and transaction costs

The growing competition between Forex brokers has reduced transaction costs to
record lows. To open a position on Forex, you’ll have to pay the so-called spread,
which represents the difference between the buying and selling rate of a currency
pair. Major currencies, like the one listed above, are usually very tight spreads in
the range of 1-3 pips (the fourth decimal place of an exchange rate), while less
liquid pairs and exotic currencies can have significantly higher spreads. However,
major currencies are the most traded currencies on the Forex market.

To put the spread into perspective, if we’re trading 100,000 units of the base
currency (one standard lot), we’ll usually have to pay around $10 of transaction
costs on the EUR/USD pair if our broker’s spread is 1 pip. If we open one mini
lot (10,000 units of the base currency), our transaction cost will equal to only $1.
With most brokers, there are no commission fees involved in Forex trading.

The stock market, on the other hand, has substantially higher transaction costs
compared to Forex. Brokers usually charge a fixed commission to open a trade.
However, if we’re trading CFDs on stocks, our transaction costs would be
significantly lower and comparable to Forex trading. Still, a stock day trader vs
Forex trader could pay way more in transaction costs.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 11 of 36
Insider trading

There’ll always be a group of people who know something that the ordinary retail
trader doesn’t, whether it’s the financial standing of a company, plans for a new
product line, or pending changes in the top management.

The Forex market, the largest financial market in the world with an average daily
turnover of around $5 trillion, makes insider trading almost impossible. While
there is no such thing as a “Forex stock”, currencies are for countries what stocks
are for companies. Forex, stocks, and currencies all behave differently due to the
size and liquidity of their respective market.

Exchange rates of liquid major currency pairs would probably not be impacted
at all, which puts the retail Forex trader into an advantageous position compared
to their stock trading peer.

The existence of middlemen in trading

As an over-the-counter market, there is no centralised exchange in the Forex


market and currencies are exchanged directly between buyers and sellers. Our
broker is the only intermediary, making the transaction possible by routing,
buying ,and selling orders to match the best possible prices on the market.

If we want to buy or sell stocks on the stock exchange, we can’t bypass an


intermediary if we want to make the transaction happen.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 12 of 36
The access to leverage

Exchange rates usually fluctuate less than one percent a day. For retail Forex
traders to make a profit on the market, brokers lend them money to open a
significantly larger position size than their initial trading account sizes would
otherwise allow. This is called trading on leverage.

To open a leveraged position, we have to allocate a small portion of our trading


account as the collateral for the position. The available leverage on the Forex
market is extremely high – much larger than on the stock market. Forex brokers
offer 100:1, 200:1 or even 400:1 leverages, while the stock market is usually
restricted with a maximum leverage of 20:1.

However, trading on extremely high leverage can also lead to large losses if our
analysis shows to be incorrect. Leverage increases both our profits and losses, so
make sure we fully understand the concept of leverage and the risks associated
with it before trading on high leverage ratios.

Technical analysis for Forex and stocks

Technical analysis is an analytical discipline that involves the analysis of pure


price charts. Since one of the basic tenets of technical analysis is that markets like
to trend, almost all technical tools are primarily aimed at identifying trends and
trend reversals in their early stages.

It’s no secret that trend following strategies are very profitable. we only have to
catch a trend early in its development, open a position in the direction of the trend,
and ride it as long as it lasts.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 13 of 36
The Forex market is famous for its long-lasting trends. Currencies simply like to
trend, as they’re influenced by a number of fundamental factors that gradually
build up over time leading to strong trends in the long-term. That’s why technical
analysis works great on the Forex market, and many retail traders base their
trading decisions solely on technical levels.

Technical analysis also works on the stock market. Tools such as chart patterns,
moving averages, and trend lines are regularly used by technical stock traders to
find profitable trading opportunities.

Forex has a significant advantage with regard to trading times, leverage, absence
of insider trading, and intermediaries, and the lower number of currencies
compared with stocks. Both Forex and stocks have their own advantages and
disadvantages.
FACTORS AFFECTING FOREIGN EXCHANGE RATE
FLUCTUATIONS

1. Inflation Rates
Changes in market inflation cause changes in currency exchange rates. A country
with a lower inflation rate than another's will see an appreciation in the value of
its currency. The prices of goods and services increase at a slower rate where the
inflation is low. A country with a consistently lower inflation rate exhibits a rising
currency value while a country with higher inflation typically sees depreciation
in its currency and is usually accompanied by higher interest rates

RAMAIAH INSTITUTE OF MANAGEMENT


Page 14 of 36
2. Interest Rates
Changes in interest rate affect currency value and dollar exchange rate. Forex
rates, interest rates, and inflation are all correlated. Increases in interest rates
cause a country's currency to appreciate because higher interest rates provide
higher rates to lenders, thereby attracting more foreign capital, which causes a
rise in exchange rates

3. Country’s Current Account / Balance of Payments


A country’s current account reflects balance of trade and earnings on foreign
investment. It consists of total number of transactions including its exports,
imports, debt, etc. A deficit in current account due to spending more of its
currency on importing products than it is earning through sale of exports causes
depreciation. Balance of payments fluctuates exchange rate of its domestic
currency.

4. Government Debt
Government debt is public debt or national debt owned by the central
government. A country with government debt is less likely to acquire foreign
capital, leading to inflation. Foreign investors will sell their bonds in the open
market if the market predicts government debt within a certain country. As a
result, a decrease in the value of its exchange rate will follow.

5. Terms of Trade
Related to current accounts and balance of payments, the terms of trade is the
ratio of export prices to import prices. A country's terms of trade improves if its

RAMAIAH INSTITUTE OF MANAGEMENT


Page 15 of 36
exports prices rise at a greater rate than its imports prices. This results in higher
revenue, which causes a higher demand for the country's currency and an increase
in its currency's value. This results in an appreciation of exchange rate.

6. Political Stability & Performance


A country's political state and economic performance can affect its currency
strength. A country with less risk for political turmoil is more attractive to foreign
investors, as a result, drawing investment away from other countries with more
political and economic stability. Increase in foreign capital, in turn, leads to an
appreciation in the value of its domestic currency. A country with sound financial
and trade policy does not give any room for uncertainty in value of its currency.
But, a country prone to political confusions may see a depreciation in exchange
rates.

7. Recession
When a country experiences a recession, its interest rates are likely to fall,
decreasing its chances to acquire foreign capital. As a result, its currency weakens
in comparison to that of other countries, therefore lowering the exchange rate.

8. Speculation
If a country's currency value is expected to rise, investors will demand more of
that currency in order to make a profit in the near future. As a result, the value of
the currency will rise due to the increase in demand. With this increase in
currency value comes a rise in the exchange rate as well.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 16 of 36
Political Impact on Forex Markets
The political landscape of a nation plays a major role in the economic outlook for
that country and, consequently, the perceived value of its currency. Forex traders
are constantly monitoring political news and events to gauge what moves, if any,
a country's government may take in the economy. These can include measures
from increasing government spending to tightening restrictions on a particular
sector or industry.

For instance, an upcoming election is always a major event for currency markets,
as exchange rates will often react more favourably to parties with fiscally
responsible platforms and governments willing to pursue economic growth. A
good example is the Brexit vote, which had a major impact on the British pound
(GBP) when the UK voted to leave the EU. The currency reached its lowest levels
since 1985 after the vote because the UK's economical prospects were suddenly
highly uncertain.

The fiscal and monetary policies of any government are the most important
factors in its economic decision making. Central bank decisions that impact
interest rates are keenly watched by the forex market for any changes in key rates
or future outlooks.

INDIAN STOCK MARKET

Secondary market provides a good earning opportunity to participants. Stock


price of a company fluctuates based on the buy-sell process of the market
participants and stock price discovery is based on the demand-supply mechanism
of these participants.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 17 of 36
Of the current active stock exchanges in India, BSE and NSE are the leading ones.
BSE holds the crown to be the oldest stock exchange in Asia established in 1875.
NSE is the new entrant in the bourse business established in 1992 after Harshad
Mehta scam emerged on BSE. Despite the new entrant in the bourse business,
NSE implemented technology and brought transparency in the stock market.
Retail traders prefer NSE to BSE. Both BSE and NSE have different criteria to
categorize their stocks. You can find more about these criteria at BSE groups and
NSE series.

SEBI

Securities and Exchange Board of India (SEBI) regulates all the entities of Indian
stock market including the stock exchanges and financial intermediaries. Stock
market is also seen as the economic barometer of a country thus the importance
of stock market in the economy cannot be ignored. It is the main reason that SEBI
with its 20 SEBI departments, keeps a close watch to every action in the stock
market eco-system and introduces various bye-laws to bring more transparency
and build the trust of investors as well as of corporates.

Factors affecting the Indian stock market


Theoretically, stock prices of a company should fluctuate based on a company’s
performance only. But just like in any other field, theories face an immense
challenge in the real world of the stock market field as well. A company having
very good fundamentals may seem to erode your all invested money (in short-

RAMAIAH INSTITUTE OF MANAGEMENT


Page 18 of 36
term) without any logical reason. On the other hand, a company with weak
fundamentals can skyrocket (for short-term). Although these extreme situations
happen rarely and are short-lived, however they can give nightmares to a trader.
Let’s see the factors that affect the stock prices of a company.
Price rigging
The stock market is a money-driven eco-system thus scammers are naturally
attracted to it. They keep on finding the loop-holes in the system for exploitation
and their benefits. One of the biggest loopholes was the price-rigging. harshad
Mehta scam and then the ketan parekh scam displayed exploitation of this
vulnerability. Scammers, through circular trading or other malpractices, used to
artificially influence the stock price of a company. Since it has been noticed by
SEBI, such practices have been minimized thus this source of price fluctuation is
today almost out of context.

Regulatory Actions
SEBI, since its inception, has brought transparency and built investor’s trust in
the stock market eco-system. It also introduced the discount brokerage and
several other initiatives to increase the active participants in the stock market.
One of the main objectives of SEBI
To protect the rights of investors and ensure the safety of their investment”.

To achieve this objective, SEBI introduces various bye-laws from time to time.

One of the most important bye-laws was introducing the circuit and circuit
breaker in Indian stock market. The circuit breaker was introduced to save
investor’s money and stock market crash. The threshold set for stock fluctuation
in both positive and negative direction called circuit. If any day, a stock fluctuates
more than the threshold, the circuit is hit and the circuit breaker kicks in. This
circuit breaker halts that specific stock for the pre-assigned time period or for the

RAMAIAH INSTITUTE OF MANAGEMENT


Page 19 of 36
whole day. Circuit and circuit breaker also apply to the BSE S&P SENSEX and
NSE Nifty.
On one hand this circuit breaker, when halts the buy-sell of a particular scrip due
to abnormal fluctuation, gives traders/investors time to go through the news and
take decision patiently and let the market cool down. On the other hand, this
circuit breaker does affect the demand-supply chain process. This affects the
natural price discovery of that particular stock.

RBI monetary policy


Reserve Bank of India (RBI) is the central bank in India which regulates the
monetary policies in India. From time to time RBI revises the repo and reverse
repo rates. It is based on the RBI’s view regarding inflation. If it feels that people
are spending more than they are earning then it may increase the rates. The
increased interest rates on credit cards and loans force people to minimize the
overspending and save more in the banks. But it has a negative side as well. More
interest rate means companies pay more on the loans. Industries which rely
heavily on capital, suffer. Their manufacturing costs may increase thus their
products may become expensive.

Thus an increase in repo and reverse repo rates may adversely affect the capital-
intensive industries while a decrease may raise their stocks.

Market Sentiments
Most participants don’t follow the basic rule of delivery trades in the stock market
“be greedy when the market is fearful and be fearful when the market is greedy”.
They just follow the herd. If the price is going down there will be huge selling

RAMAIAH INSTITUTE OF MANAGEMENT


Page 20 of 36
from most of the speculators/traders. According to their perspective, they are
preventing their money from more losses. Same happens when prices are rising.
They want to leverage the bullish environment. This is called market sentiment.

A sentiment (either bullish or bearish) if injects into the market, is followed


heavily by the traders and speculators.
Market sentiments can be roughly classified into 3 categories viz.

There are three types of participants in the stock market viz. speculator, trader
and investor. A speculator has no rationale behind his decision to enter a trade.
These are either very new or just want to make quick money in the stock market.
They follow the price movements in intra-day trades and act accordingly. For
some stocks, these participants move the prices heavily.

Tips provider
There are several speculators/traders who solely rely on the tips by their stock
brokers, news experts and analysts. There are several whatsapp groups and sms
services also mushrooming to provide trading tips. SEBI is already dealing with
non-registered groups and tips providers. Such tips providers and groups hugely
affect the market sentiments. Usually, if a tip provider initiates a buy/sell call, it
is followed blindly by its subscribers and fluctuates the price movement.

News
Apart from experts giving advice and tips all day, news channels are one of the
best medium for updates in any industry or company. For traders, this medium
becomes the primary source for the next pick. No need to mention the access of
these news channels to the traders. A news about a company can hugely fluctuate
its prices.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 21 of 36
Company announcements
Apart from the recent changes in the news channels, which a company may not
have made publicly, there are several announcements for which a company
chooses the public platform. These announcements may be regarding the bonus,
split, dividend or a just a management change. Reaction to such announcements
reflects in the stock price in no time.

Global incidents
Any global incident which affects the cost of manufacturing, transportation,
import-export of goods in a country, affects the stock market. Any war-like
situation (either on-ground or cold war) or end of this situation also do the same
thing.

Weather
Not only commodity market but the equity market is also fluctuated by a forecast
of a good/bad weather like rain, high/low temperature by the meteorological
department. Exempli Gratia, a good rain means good crop leading to more income
by farmers. More income means more money to buy things necessary for a
farmer. There may be a good time ahead for the tractor industry. A colder winter
this year may be a good time for the woollen clothes and heater industry. ⇯

Natural Disasters
Natural disasters (e.g. earthquake, drought, flood, cyclones etc) bring chaos to the
real life of humans. Maybe its just the way of nature telling human, who is the
boss!

RAMAIAH INSTITUTE OF MANAGEMENT


Page 22 of 36
These natural disasters also affect stock market heavily These disasters hugely
affect a company’s manufacturing cost or employee count, which in turn, reduces
the revenue. It also reduces the spending/investing capacity of the society due to
losses of movable/immovable assets. This results in lesser consumption of
products, leading to lesser sales and revenue of the companies.

Also, as a result of these disasters, market participants don’t have the time and
interest to trade/invest in stock market because they are busy to recover from the
disaster.

On practical grounds politicians are also humans and they do have their own
judgements. A rise of a particular political party can be hugely beneficial/lossy
due to the party’s own judgement regarding the industry. A tug of war ending
between two political parties after election results may also fluctuate the market
either up/downside.

Government policies
Every industry runs highly on the government policies. A government’s new
policy may be hugely profitable to one industry but at the same time, the same
policy may be disastrous for another industry. It’s also possible that a policy may
be profitable to all the industries or may be disastrous to all of them as well.

Any constructive well-thought and well-executed government policy either for


genuine development or for appeasement of the public may raise the prices of the
relevant industry/company.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 23 of 36
FII & DII
Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs)
do buy-sell stocks in bulk. Their entry/exit in any stock does leave a huge
footprint on the stock price.

Types of Forex Charts


Although there are several types of forex charts, only three are used in common-
Line charts, Candlestick charts and Bar charts.

Line Charts
This chart is the simplest chart and doesn’t give much detail. A line chart just has
a line drawn from one closing price to the next closing price. So, all you see in a
line chart is a series of closing prices.

Even though they are not popular, sometimes traders use these charts if they want
to have a quick look at the least amount of data without all the cluttering
information.

Here is how a line chart looks like:

RAMAIAH INSTITUTE OF MANAGEMENT


Page 24 of 36
RAMAIAH INSTITUTE OF MANAGEMENT
Page 25 of 36
Bar Charts
Bar chart OHLC chart

A bar chart reveals slightly more information than the line chart. You see both
closing and opening prices in a bar chart. So, if you look at a 1-hour chart, each
bar represents 1 hour. A bar in a 1-hour bar chart shows the price it opened within
that hour and the closing price of that hour. In addition to that, it also shows the
highest and the lowest prices of that hour.

In a one hour chart, The top of a bar shows the highest price of the hour and the
bottom of the bar shows the lowest price. The little horizontal hash on the left
side shows the opening price of the hour and the horizontal hash on the right side
of the bar shows the closing price of the hour.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 26 of 36
You can apply the same for the other time frames. Since each bar shows the open,
close, high and low prices of a currency, the bar charts are also known as OHLC
charts.

Here is how a bar chart looks:

Candlestick Charts
This is the most popular and widely used type among all the three types of Forex
charts. Both bar charts and candlestick charts reveal the same information: open,
close, high and low prices for a particular time period of a specific currency. But

RAMAIAH INSTITUTE OF MANAGEMENT


Page 27 of 36
in the candlestick charts, the space between the two horizontal hashes are replaced
with a graphic that looks like the body of a candle. So, the chart looks more
attractive and easy to read.

The area between the open and the close prices of a time period is known as the
body. The projections outside the body of the candle at the top and at the bottom
are called ‘shadows’.

With default settings, a candle may be either filled with a white colour or unfilled
and hollow.

Bearish Candle
A filled candle, just means that that the opening price is higher than the closing
price. In other words, the price has come down in that specific time period. This
is also known as a bearish candle. A downward movement in the Forex is also
known as a bearish move.

Bullish candle
A hollow, unfilled candle means that the closing price is higher than the opening
price. In other words, the price has gone up in that specific period. This is also
known as the bullish candle. An upward movement in the Forex is known as a
bullish move.

You can change the default settings to make the charts look a little bit better. It is
a common practice to change the colour of the filled candles to red and the color
of the hollow candles to green.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 28 of 36
Here is how a candlestick chart looks like with the default hollow and filled
candles:

RAMAIAH INSTITUTE OF MANAGEMENT


Page 29 of 36
And here is the chart with red and green candles:

It is very helpful to use candlestick charts, especially with red and green candles.
They give you a quick picture of the trend and are very easy to interpret. Also,
certain type of candlesticks has names like ‘Doji’, ‘Shooting star’ etc., which may
indicate some specific changes in the market.
TECHNICAL INDICATORS
Moving averages are among the best technical indicators for Forex trading. As
their name suggests, moving averages show the average price over a pre-specified
number of trading sessions and plot it directly on the chart. For example, a 10-
day moving average would plot the average price over the last ten trading days,
while a 20-period moving average on a 4-hour timeframe would plot the average
price of the last twenty 4-hour bars. Given their simplicity, moving averages are
probably the best Forex chart indicators for day traders.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 30 of 36
There are two main types of moving averages: simple moving averages (SMA),
and exponential moving averages (EMA). The main difference between them is
the way they calculate the average price. Since EMAs use an exponential
approach and put more weight on recent price action, they tend to react more
quickly to price changes than SMAs.

In addition to being a trend-following indicators (moving averages point up in


uptrends, and down in downtrends), they can also be used to identify dynamic
support and resistance zones. In this regard, the 50-day, 100-day and 200-day
moving averages are extremely popular and the price might find it challenging to
break through these lines.

Moving averages also form one of the basic technical trading strategies in Forex,
called the Moving Average Crossover. In this strategy, traders apply two MAs to
their chart, one slower MA (higher period-setting) and one faster MA (shorter
period-setting). A bug signal occurs when the faster MA crosses the slower MA
from below, while a sell signal occurs when the faster MA crosses the slower MA
from above. This is shown on the following chart, using two EMAs – one with a
5-period setting (the fast EMA), and one with a 50-period setting (the slow EMA).

RAMAIAH INSTITUTE OF MANAGEMENT


Page 31 of 36
Whether you use EMAs or SMAs in your trading, moving averages are one of the
top Forex indicators for all trading styles, so make sure to incorporate them into
your trading strategy.

Fibonacci tools

Fibonacci tools are also some of the best technical indicators for Forex. Named
after famous Italian mathematician Leonardo Fibonacci, who discovered the
Fibonacci sequence of numbers (1,1,2,3,5,8,13…), Fibonacci tools are used to
measure the extent of a correction during an uptrend or downtrend.

Whenever a market makes a strong upwards or downwards move, market


participants who lock in their profits and buyers/sellers who perceive the new
price as too low/high start to enter the market, creating a short-term price
correction in the opposite direction of the underlying trend. That’s why you see
the price on a chart fluctuating and zig-zagging from highs and lows.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 32 of 36
The Fibonacci retracement tool measures the extent of the correction from the
recent low to a recent high using ratios based on the Fibonacci sequence of
numbers. Since a price correction usually reaches 50% of the previous move,
Fibonacci retracement levels of 38.2% and 61.8% (also called the Golden Ratio)
are followed by traders worldwide and can host a large number of market orders,
basically acting as support or resistance for the price. The following chart shows
how the price respects the 61.8% Fibonacci retracement level, after which the
price returns to its previous uptrend.

Once the price shows to respect a Fibonacci retracement level, another tool called
Fibonacci extension levels is used to determine where the price might go in the
future. By combining these two Fibonacci indicators, traders get one of the most
reliable technical indicators in Forex and one of the best Forex indicators to use
together.Fibonacci levels are one of the top indicators for Forex trading, and
many trend-following strategies can be built around them making it one of the
best Forex trading strategy indicator.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 33 of 36
Oscillators – Relative Strength Index (RSI) and Stochastics
Oscillators, or momentum indicators, are another group of good indicators for
Forex trading. They include indicators such as the Relative Strength Index (RSI)
and Stochastics, which are proven Forex indicators that work.

The Relative Strength Index (RSI) measures the momentum of a price move
relative to time, and can return a value between 0 and 100. Developed by Mr.
Wilders, the RSI is popularly used to determine overbought and oversold market
conditions. An RSI value above 70 signals an overbought market where the price
may soon reverse and fall down, while an RSI value below 30 signals an oversold
market where the price may soon go up.
However, we should note that markets can stay oversold and overbought for a
long period of time, so you shouldn’t base your trading decisions solely on the
value of the RSI indicator. Also, trading oversold and overbought market
conditions is generally considered as a counter-trend trading approach, which can
be riskier than a trend-following approach. Trading RSI levels that are
overbought and oversold is shown on the following chart. Pay attention to the
fake signals that the indicator may generate from time to time.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 34 of 36
Similar to the RSI, the Stochastics is also an oscillator which can range between
0 and 100. Unlike the RSI where the 30 and 70 levels are considered as thresholds
for oversold/overbought market conditions, in the case of Stochastics those levels
are 20 and 80. Since both indicators are oscillators, they return similar results
when applied to a chart. The following chart shows how to use the Stochastics
indicator to trade overbought and oversold levels in a ranging market (the ADX
could be used to determine whether a market is ranging or trending).

Picking the best indicator for Forex trading is not an easy task. All of the
mentioned indicators are good indicators for Forex trading, and they’re used in
different market conditions and cater to different trading styles. Since all
indicators lag the current price, we should be cautious when using them as Forex
trading forecasting indicators. Alternatively, try to avoid placing trades based
solely on technical indicators, and try to use them as confirmation tools instead.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 35 of 36
Moving averages are probably the most popular technical indicator on our list,
and traders around the world use them as a trend-following tool or as dynamic
support/resistance lines. Fibonaccis also have a proven track record, just like the
RSI, ADX, and Stochastics.

SENTIMENTAL ANALYSIS

Forex sentiment refers to the overall feeling the market participants have about
the performance of a currency pair. It is a useful way of gauging the feeling or
tone of the market and then making appropriate trade decisions.
Every trader participating in the forex market has his or her own opinion about
the direction the market is likely to take. And, the decisions they make—whether
to place buy or sell orders—is based on these views.

Ultimately, the predominant direction the market is going to take is based on the
combination of the opinions of all the market participants.

For example, if the dominating sentiment is bullish for a currency pair, it will rise
in value. Note that using sentiment analysis will not provide you with specific
entry and exit places for every trade—but it will assist you to know whether to
ride with the flow or not.

RAMAIAH INSTITUTE OF MANAGEMENT


Page 36 of 36