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SUMMER PROJECT REPORT ON

TECHNICAL ANALYSIS IN

FOREIGN EXCHANGE

WITH REFERENCE TO

(SPAN CAPLEASE PVT. LTD.)

BY

Vaghela Ajay

.

SUBMITTED TO:

C.K.SHAH VIJAPURWALA INSTITUTE OF

MANAGEMENT, VADODARA.


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ACKNOWLEDGEMENT

It is almost inevitable to incur indebtedness to all who generously helped by

sharing their invaluable time and rich experience with me, without which this

project would have never been accomplished.With regards to my project with Span Caplease Pvt. Ltd., I would like to

thank each & every one who offered help, guidelines & support whenever

required.

No task can be achieved alone, particularly while attempting to finish a

project of such magnitude. It took many very special people to facilitate it and

sup3port it. Hence, I would like to acknowledge all of their valuable support

and convey our humble gratitude to them.

I would like to acknowledge my sincere gratitude to my mentor Miss Neha

& the director Mr. Kaushal Shah for sharing their valuable ideas,

constructive criticism and motivation, which were the guiding, light during the

entire tenure of this work.

In our efforts we would not forget the contribution of our institute

CKSVIM. I express a deep gratitude to my institute for the valuable support,

guidance and encouragement during the summer internship.

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PREFACE

Summer training is an integral part of the MBA programme. The main objectiveof the Summer Training is to work in the organization and gain the valuableknowledge of management skills that will be useful in the future career

building.

The purpose is to study how an organization functions and how to apply our

theoretical knowledge in the professional life. As a practical point of view for

training We have selected Span Caplease Pvt. Ltd. which is one of the leading

brokerage house in Gujarat. It helps to get better understanding of stock market.

Now a days, share market business is on expansion path. Most of the people are

investing in the share market, even a people who are illiterate also investing in ashare market. This repot contain using of technical analysis in the trading offoreign exchange.

This report helps to people to know various terms and various way ofcalculating brokerage. We hope this report helps to people understand clearlyregarding stock exchange.

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EXECUTIVE SUMMARY

The summer internship at SPAN CAPLEASE undertaken by us has given us

an exposure into the investment scenario in India. The project that we were

involved with while working at SPAN CAPLEASE includes advisory

services i.e. educating the existing and potential investors about stock market as

an alternative source to investment. This involves catering to the queries of the

investors about the concept of stock market, the various options that an investor

can invest his money into, funds management of investors.

Analyzing the investors behavior includes understanding the concerns a

person has towards Stock Market, his stages in life and wealth cycle, the effect

of the investments made by the peer groups, effect of the profession he/she is

in, education qualification, importance of tax benefits, the most preferred saving

tool etc. and this all is analyzed with the help of a schedule prepared.

This project helps us to understand foreign exchange trading with the use of

the various tools of technical analysis. The technical analysis is more helpful to

take right decision regarding buying & selling of any currency. Thus, the

foreign exchange traders can get the advantage of accurate decision-making.

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INDEX

NO. Particulars Page No.

1. Industry Overview

A brief history of stock exchange

Online trading process

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10

2. Company Profile

Introduction to Span Caplease

About Span Caplease

Management Team

Spans logo

Spans vision

Spans mission

Organization Structure

Products of Span Caplease

Investment advisory services

Commodity

Benefits at Span

Depository Participant Service

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13

14

16

17

18

19

20

21

23

24

25

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3. Technical analysis

Introduction

Importance

4 important points of view

Types of charts

Methods of TA

Patterns

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27

27

28

40

48

4. History of foreign exchange 56

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5. Introduction to foreign exchange 59

6. How the Currencies are traded? 62

7. Conclusion 71

8. Bibliography 72

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A BRIEF HISTORY OF STOCK EXCHANGES:-

Do you know that the world's foremost

market place New York Stock Exchange

(NYSE), started its trading under a tree (now

known as 68 Wall Street) over 200 years ago?

Similarly, India's premier stock exchange Bombay

Stock Exchange (BSE) can also trace back its

origin to as far as 125 years when it started as a

voluntary non-profit making association.

You hear about it any time it reaches a new high or a new low, and you

also hear about it daily in statements like 'The BSE Sensitive Index rose 5%

today'. Obviously, stocks and stock markets are important. Stocks of public

limited companies are bought and sold at a stock exchange. But what really are

stock exchanges? Known also as News on the stock market appears in different

media every day. The stock market or bourse, a stock exchange is an organized

market place for securities (like stocks, bonds, options) featured by the

centralization of supply and demand for the transaction of orders by member

brokers, for institutional and individual investors. The exchange makes buying

and selling easy. For example, you don't have to actually go to a stockexchange, say, BSE - you can contact a broker, who does business with the

BSE, and he or she will buy or sell your stock on your behalf. All stock

exchanges perform similar functions

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With respect to the listing, trading, and clearing of securities, differing only in

their administrative machinery for handling these functions. Most stock

exchanges are auction markets, in which prices are determined by competitive

bidding.

Trading may occur on a continuous auction basis, may involve brokers

buying from and selling to dealers.

In certain types of stock or it may be conducted through specialists

dealing in a particular stock. But where did it all start? The need for stock

exchanges developed out of early trading activities in agricultural and other

commodities. During the middle Ages, traders found it easier to use credit that

required supporting documentation of drafts, notes and bills of exchange. The

history of the earliest stock exchange, the French stock exchange, may be traced

back to 12th century when transactions occurred in commercial bills of

exchange.

The first stock exchange in India, Bombay Stock Exchange was

established in 1875 as 'The Native Share and Stockbrokers Association' and has

evolved over the years into its present status as the premier stock exchange in

the country. It may be noted that BSE is the oldest stock exchange in Asia, even

older than the Tokyo Stock Exchange, which was founded in 1878. The

country's second stock exchange was established in Ahmedabad in 1894,

followed by the Calcutta Stock Exchange (CSE). CSE can also trace its origin

back to 19th century. From a get together under a 'Neem Tree' way back in the

1830s, the CSE was formally established in May 1908.

India's other major stock exchange National Stock Exchange (NSE),

promoted by leading financial institutions, and was established in April 1993.

Over the years, several stock exchanges have been established in the major

cities of India. There are now 23 recognized stock exchanges Mumbai (BSE,

NSE and OTC), Calcutta, Delhi, Chennai, Ahmedabad, Bangalore,

Bhubaneswar, Coimbatore, Guwahati, Hyderabad, Jaipur, Kochi, Kanpur,

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Ludhiana, Mangalore, Patna, Pune, Rajkot, Vadodara, Indore and Meerut.

Today, most of the global stock exchanges have become highly Efficient,

computerized organizations. Computerized networks also made it possible to

connect to each other and have fostered the growth of an open, global securities

market.

Realizing there is untapped market of investors who want to be able to

execute their own trades when it suits them, brokers have taken their trading

rooms to the Internet. Known as online brokers, they allow you to buy and sell

shares via Internet.

Online Trading is a service offered on the Internet for purchase and sale of

shares. In the real world, you place orders on your stockbroker either verbally

(personally or telephonically) or in a written form (fax). In Online Trading, you

will access a stockbroker's website through your internet-enabled PC and place

orders through the broker's internet-based trading engine. These orders are

routed to the Stock Exchange without manual intervention and executed thereon

in a matter of a few seconds.

There are 2 types of online trading service: discount brokers and full service

online broker. Discount online brokers allow you to trade via Internet at

reduced rates. Some provide quality research, other dont. Full service online

brokerage is linked to existing brokerages. These brokers allow their clients to

place online orders with the option of talking/ chatting to brokers if advice is

needed. Brokerage rates here are higher. Indiainfoline.com, span caplease,

ICICIDirect.Com, IndiaBulls.Com, AngelBroking.com,

HDFCSecurities.Com is some of the online broking sites in India.

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ONLINE TRADING PROCESS:-

The various transactions involved in online trading can be shown from the point

of view of the

Client

Broker

Stock Exchange.

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Online trading process

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COMPANY PROFILE

INTRODUCTION AND HISTORY:-

SPAN CAPLEASE is the retail broking Firm, an organization with

more than eight decades of trust & credibility in the stock market. It is India's

leading retail financial Services Company. While our size and strong balance

sheet allow us to provide you with varied products and services at very

attractive prices, our over Client Relationship Managers are dedicated to

serving your unique needs. SPAN CAPLEASE is lead by a highly regarded

management team that has invested into a world class Infrastructure that

provides our clients with real-time service & 24/7 access to all information and

products. Our flagship SPAN CAPLEASE Professional Network offers real-

time prices, detailed data and news, intelligent analytics, and electronic trading

capabilities, right at your fingertips. This powerful technology complemented

by our knowledgeable and customer focused Relationship Managers. We are

creating a world of Smart Investor.

SPAN CAPLEASEoffers a full range of financial services and products

ranging from Equities to Derivatives enhance your wealth and hence, achieve

your financial goals. SPAN CAPLEASE Client Relationship Managers are

available to you to help with your financial planning and investment needs. To

provide the highest possible quality of service, SPAN CAPLEASE Broking

provides full access to all our products and services through multi-channels.

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INTRODUCTION TO SPAN

In a shot span of 12 years since inception, the SPAN Group has emerged as

one of the top five retail stock broking houses in India, having membership of

BSE, NSE and the two leading Commodity Exchanges in the country i.e.

NCDEX & MCX. span is also registered as a Depository Participant with

CDSL.

The group is promoted by Mr. ANIL SHAH, who started this business as a

sub-broker in 1987 with a team of 3. Today the SPAN CAPLEASE group is

managed by a team of 35 direct employees and has a nationwide network

comprising of Regional hubs, and sub brokers & business associates. SPAN

CAPLEASE is 100% focused on retail stock broking business unlike any

other larger national broking house. The group currently services more than

thousand retail clients.

SPAN CAPLEASE habitually generates value added features without

the cost burden being passed on to the clients as they strongly believe that better

understanding of clients needs and wants is their top priority. Their e-broking

facility is one such effort, which gives the client a platform to access state of the

art trading facility at the click of a button.

SPAN CAPLEASE has always strived for delivering customer delight

and developing strong long term bonds with its clients as well as channel

partners. SPAN CAPLEASE thrives on a vision to introduce new and

innovative products and services constantly. Moreover, SPAN CAPLEASE

has been among the pioneers to introduce the latest technological innovations

and integrate them efficiently within its business.

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About the SPAN

SPAN CAPLEASE tryst with excellence in customer relations began more

than 12 years ago. SPAN Group has emerged as one of the top retail broking

houses in Gujarat and incorporated in 1998. Today, SPAN has emerged as a

premium Indian stock-broking and wealth management house, with an absolute

focus on retail business and a commitment to provide "Real Value for Money"

to all its clients.

It has memberships on BSE, NSE and the leading commodity exchanges in

India NCDEX & MCX. Span is also registered as a depository participant with

CDSL.

SPAN Group Companies

Span Caplease pvt ltdMember on the BSE and Depository

Participant with CDSL

Span Caplease pvt ltdMembership on the NSE Cash and Futures &

Options Segment

SPAN Commodities &

Derivatives Pvt LtdMember on the NCDEX & MCX

Span Caplease pvt ltd Member on the BSE

Incorporated : 1998

BSE Membership :2004

NSE membership : 2005

Member of NCDEX and MCX

Depository Participants with CDSL

SPANs presence:-

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Nation- wide network of regional hubs

Presence cities

Thousand+ sub brokers & business associates

Thousand+ clients

Management

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S.No Name Designation & Department

1. Mr. Anil shah Founder Chairman & Managing Director

2. Mr. Kaushal shah Director

3. Miss.Neha Span Technical Trading (Marketing)

4. Mr. Ravi Sales and Marketing

.

SPAN LOGO

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SPAN VISION

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Spans Mission

At SPAN we exists to provide

Service Excellence

Personal Touch

Always Accessible

New Ideas

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OUR ORGANIZATIONAL STRUCTURE

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Products of SPAN Broking

1. Online Trading

2. Commodities

3. DP Services

4. PMS (Portfolio Management Services)

5. Insurance

6. IPO Advisory

7. Mutual Fund

8. Personal loans

9. Quality assurance

Online- Trading

Specially designed for the net savvy traders and investors who prefer

operating from their home or office through the internet. The investor can

access state of the art Technology with three different e-broking products

and voila trading on BSE, NSE, F & O, MCX and NCDEX.

SPAN DIET

Application based product for Traders.

Application based ideal for traders.

Multiple exchanges on single screen

Online fund transfer facility

User friendly & simple navigation

BSC, NSC, F&O, MCX & NCDEX

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SPAN ANYWHERE

Application based product for Traders with Charts.

Application-based platform for day traders

Intra-day/historical charts with various indicators


BSC, NSC, Cash & Derivatives

SPAN TRADE

Browser based product for Active Investors.

Browser based for investor

No installation required

Advantage of mobility

Trading as simple as internet surfing

BSC, NSC, F&O, MCX & NCDEX

SPAN INVESTOR

User-friendly browser for investors

Easy online trading platform

Works in proxy and firewall system set up

Integrated Back office: Access account information anytime,

anywhere

Streaming quotes

Refresh static rates when required

Multiple exchanges on single screen

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Investment Advisory Services

To derive optimum returns from equity as an asset class requires

professional guidance and advice. Professional assistance will always be

beneficial in wealth creation. Investment decisions without expert advice would

be like treating ailment without the help of a doctor.

Expert Advice: Their expert investment advisors are based at various

branches across India to provide assistance in designing and monitoring

portfolios.

Timely Entry & Exit: Their advisors will regularly monitor

customers investments and guide customers to book timely profits. They

will also guide them in adopting switching techniques from one stock to

another during various market conditions.

De-Risking Portfolio: A diversified portfolio of stocks is always

better than concentration in a single stock. Based on their research, they

diversify the portfolio in growth oriented sectors and stocks to minimize the

risk and optimize the returns.

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Commodities

A commodity is a basic good representing a monetary value. Commodities

are most often used as inputs in the production of other goods or services. With

the advent of new online exchange, commodities can now be traded in futures

markets. When they are traded on an exchange, Commodities must also meet

specified minimum standards known as basic grade.

Types of Commodities

Precious Metals : Gold and Silver

Base Metals : Copper, Zinc , Steel and Aluminum

Energy : Crude Oil, Brent Crude and Natural Gas

Pulses : Chana , Urad and Tur

Spices : Black Pepper, Jeera, Turmeric , Red Chili

Others : Guar Complex, Soy Complex, Wheat and Sugar

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Benefits at SPAN

Three different online products tailored for traders & investors.

Single Screen customized market-watch for MCX / NCDEX with BSE /

NSE.

Streaming Quotes and real time Rates. Intra-day trading calls.

Research on 25 Agro Commodities, Precious and Base Metals, Energy

products and Polymers.

An array of daily, weekly and special research reports.

Highly skilled analysts with professional industry experience.

Active relationship management desk.

Seminars, workshops and investment camps for investors

Depositary Participant Services

SPAN CAPLEASE is a DP services provider though CDSL. We offer

depository services to create a seamless transaction platform to execute trades

through SPAN group of companies and settle these transactions through Span

Depository services.

Wide branch coverage

Personalized/attentive services of trained a dedicated staff

Centralized billing & accounting

Daily statement of transaction & holdings statement on e-mail

No charges for extra transaction statement & holdings statement

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their own ideas on setting up their indicators. These differences are calledhaving your own trading system. You can take 10 different traders and you will

probably get 10 different systems that give different signals. These differencesare what make a market work.

Technical analysis is very useful in forex trading. It makes up only one portionof what you need to know when trading, but it is a very important thing to learn.

Understanding technical analysis will give the charts some meaning when youlook at them and help you understand why certain price movements occurred.

THE IMPORTANCE OF TECHNICAL ANALYSIS

Traders have a second tool to use in trading. Technical analysis, which hasbecome extremely popular in the last two decades, consists of using charts,trend lines, support and resistance levels, technical indicators, and pattern

identification to study the market's behavior. Traders use these technical factorsto identify buying and selling opportunities. Over long historical periods,currency behavior has produced trends and patterns that are identifiable.

4 IMPORTANT POINTS OF VIEW

PRICE: Changes in price reflect changes in investor psychology and demandfor and supply of securities.

TIME: The degree of movement in prices is a function of time.

VOLUME: The intensity of the price changes is reflected in the volume oftransaction that accompanies the change.

BREADTH: Market breadth studies the extent to which price changes havetaken place number of stocks in comparison with direction of market trend.

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TYPES OF CHARTS

Line charts: Line charts are simple graphs drawn by plotting the closing pointsof the instruments for given time frame and connecting the points thus plottedover a period of time. We can draw line chart using high, low and open prices

but charts drawn with the help of closing price are most commonly used. Belowis the example of line chart

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Bar charts: Bar chart is providing more information about prices movementduring selected time frame than line chart. In order to draw a line chart, dayshigh, open, low and closing price are considered. To plot a stocks price

movement, the high and low reached on a said time (1-min, 3-min, and 10-min,daily, weekly) is marked and connected by a vertical line. On the left side ofvertical line opening price is indicated by a small horizontal tick and on theright side of the line closing price indicated by a small horizontal tick so final

picture of bar looks like given below.

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Candle stick charts: The construction of candle stick chart is mostly same likebar chart. A price chart that displays the high, low, open and close for a securityeach day over a specified period of time on a single stick. On a single stick topis indicated as high of the day, bottom of the stick is indicated as low of theday. However the terminology used is quite different from the bar chart. A

single day market has given close higher than open than color of the body willbe green. And if close lower than open than the color of the body will be red.Below given is the example of the candle stick chart.

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Bar Compared to Candlestick Charts

Below is an example of the same price data conveyed in a standard bar chart

and a candlestick chart. Notice how the candlestick chart appears 3-

dimensional, as price data almost jumps out at you.

( 3a )

( 3b )

The long, dark, filled-in real bodies represent a weak (bearish) close ( 3a ),

while a long open, light-colored real body represents a strong (bullish) close

( 3b ). It is important to note that Japanese candlestick analysts traditionally

view the open and closing prices as the most critical of the day. At a glance,notice how much easier it is with candlesticks to determine if the closing price

was higher or lower than the opening price.

Common Candlestick Terminology

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The following is a list of some individual candlestick terms. It is important to

realize that many formations occur within the context of prior candlesticks.

What follows is merely a definition of terms, not formations.

TheBlackCandlestick -- when the close is lower than the open.

The White Candlestick -- when the close is higher than the open.

The Shaven Head-- a candlestick with no upper shadow.

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The Shaven Bottom -- a candlestick with no lower shadow.

Spinning Tops -- candlesticks with small real bodies, and when appearing

within a sideways choppy market, they represent equilibrium between the

bulls and the bears. They can be eitherwhite orblack.

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Doji Lines -- have no real body, but instead have a horizontal line. This

represents when the Open and Close are the same or very close. The

length of theshadow can vary.

Candlestick Reversal Patterns

Just as many traders look to bar charts for double tops and bottoms, head-and-

shoulders, and technical indicators for reversal signals, so too can candlestick

formations be looked upon for the same purpose. A reversal does not always

mean that the current uptrend/downtrend will reverse direction, but merely that

the current direction may end. The market may then decide to drift sideways.

Candlestick reversal patterns must be viewed within the context of prior activity

to be effective. In fact, identical candlesticks may have different meanings

depending on where they occur within the context of prior trends and

formations.

Hammer-- a candlestick with a long lower shadow and small real body.

Theshadow should be at least twice the length of the real body, and there

should be no or very little upper shadow. The body may be eitherblack

orwhite, but the key is that this candlestick must occur within the context

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of a downtrend to be considered a hammer. The market may be

"hammering" out a bottom.

Hanging Man -- identical in appearance to the hammer, but appears

within the context of an uptrend.

Engulfing Patterns -- Bullish -- when a white, real body totally covers,

"engulfs" the prior day's real body. The market should be in a definable

trend, not chopping around sideways. The shadows of the prior

candlestick do not need to be engulfed.

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Bearish -- when a black, real body totally covers, "engulfs" the prior

day's real body. The market should be in a definable trend, not chopping

around sideways. The shadows of the prior candlestick do not need to be

engulfed.

Dark-Cloud Cover(bearish) -- a top reversal formation where the first

day of the pattern consists of a strong white, real body. The second day's

price opens above the top of the upper shadow of the prior candlestick,

but the close is at or near the low of the day, and well into the priorwhite, real body.

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Piercing Pattern (bullish) -- opposite of the dark-cloud cover. Occurs

within a downtrend. The first candlestick having a black, real body, and

the second has a long, white, real body. The white day opens sharply

lower, under the low of the prior black day. Then, prices close above the

50% point of the prior day's black real body.

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METHOD OF TECHNICAL ANALYSIS

There are 22 methods of technical analysis and from them one of them is

RETRACEMENT LEVEL (MONTHLY)

There are 3 types of retracement levels available in the market and they are

Down Trend Retracement Level: is the level till what level the price will pullback is called retracement level.

Up Trend Retrenchment Level: is the level till how much it will correct theprice of the particular share.

There are levels of retracement and they are

38.2%

50%

61.8%

The above given numbers are Fibonacci numbers. As per the Fibonacciretracement numbers market will remain in same trend till market give close

below this three levels. Lets take an example to understand it clearly.

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RETRACEMENT LEVEL (DAILY):In relative strength indices we arecombining here RSI price indicator.

POSITIVE DIVERGENCE: means when price is making lower bottoms andrelative strength indices indicator is making higher bottom at the same time,this type of resource formation is called positive divergence.

NEGATIVE DIVERGENCE: means when price is making higher bottomsand relative strength indices indicator is making lower bottoms at the sametime, this type of resource formation is called negative divergence.

Now let understand this chart by taking a live example of the USD/INR.

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And the chart explains above the price chart of USD/INR. This chart is makinglower bottom and RSI indicator is making higher bottom. This indicator saysthat downside risk in USD/INR is limited. And the underline can rise from thislevel.

We have seen above the example of the technical analysis and its one of thetechnique i.e. retracement levels for monthly as well as daily charts.

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MOVING AVERAGE

The moving average (MA) method is one of the most widely used methods oftechnical analysis. It includes different versions and levels of sophistication. Asdistinct from a diagrammatic technical analysis, the MA method is easy toquantify and apply in investment decision-making or empirical tests. Methodsof technical analysis that are based on diagrammatic analysis methods are

subjective and hence difficult to apply or examine empirically. The MA methodin contrast enables the construction of a computerized algorithm for theapplication of the method, and the indications of buy or sells signals. A movingaverage is an average of observations from several consecutive time periods. Tocompute a moving average sequence, we compute successive averages of agiven number of consecutive observations. The objective underlying the MAmethod is to smooth out seasonal variation in the data.

This technical analysis method is intended to provide a decision rule concerning

the appropriate investment position. The method involves a comparison of themost recent market price or index with the long MA of the price or indexvector. If the current price is higher than the long MA, a long investment

position should be adopted, and conversely, if the current price is lower than theMA, a short position should be adopted. In another variant of the method, thecurrent price or index can be replaced with a short MA, so that the use of themethod involves the comparison of the short MA with the long one.

Most chart patterns show a lot of variation in price movement. This can make itdifficult for traders to get an idea of a security's overall trend. One simple

method traders use to combat this is to apply moving averages. A movingaverage is the average price of a security over a set amount of time. By plottinga security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trendand increase the probability that it will work in their favor.

Types of Moving Averages

There are a number of different types of moving averages that vary in theway they are calculated, but how each average is interpreted remains thesame. The calculations only differ in regards to the weighting that they

place on the price data, shifting from equal weighting of each price pointto more weight being placed on recent data. The three most commontypes of moving averages are simple, linear and exponential.

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http://www.investopedia.com/terms/s/sma.asphttp://www.investopedia.com/terms/e/ema.asphttp://www.investopedia.com/terms/s/sma.asphttp://www.investopedia.com/terms/e/ema.asp


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Simple Moving Average (SMA)

This is the most common method used to calculate the moving average ofprices. It simply takes the sum of all of the past closing prices over thetime period and divides the result by the number of prices used in thecalculation. For example, in a 10-day moving average, the last 10 closing

prices are added together and then divided by 10. As you can see inFigure 1, a trader is able to make the average less responsive to changing

prices by increasing the number of periods used in the calculation.Increasing the number of time periods in the calculation is one of the bestways to gauge the strength of the long-term trend and the likelihood thatit will reverse.

Figure 1Many individuals argue that the usefulness of this type of average is limited

because each point in the data series has the same impact on the result

regardless of where it occurs in the sequence. The critics argue that the mostrecent data is more important and, therefore, it should also have a higherweighting. This type of criticism has been one of the main factors leading to theinvention of other forms of moving averages.

Linear Weighted Average

This moving average indicator is the least common out of the three and is usedto address the problem of the equal weighting. The linear weighted movingaverage is calculated by taking the sum of all the closing prices over a certain

time period and multiplying them by the position of the data point and thendividing by the sum of the number of periods. For example, in a five-day linearweighted average, today's closing price is multiplied by five; yesterday's by fourand so on until the first day in the period range is reached. These numbers arethen added together and divided by the sum of the multipliers.

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Exponential Moving Average (EMA)

This moving average calculation uses a smoothing factor to place a higherweight on recent data points and is regarded as much more efficient than thelinear weighted average. Having an understanding of the calculation is notgenerally required for most traders because most charting packages do thecalculation for you. The most important thing to remember about theexponential moving average is that it is more responsive to new informationrelative to the simple moving average. This responsiveness is one of the keyfactors of why this is the moving average of choice among many technicaltraders. As you can see in Figure 2, a 15-period EMA raises and falls faster thana 15-period SMA. This slight difference doesnt seem like much, but it is animportant factor to be aware of since it can affect returns.

Figure 2

Major Uses of Moving Averages

Moving averages are used to identify current trends and trend reversals aswell as to set up support and resistance levels.

Moving averages can be used to quickly identify whether a security ismoving in an uptrend or a downtrend depending on the direction of themoving average. As you can see in Figure 3, when a moving average is

heading upward and the price is above it, the security is in an uptrend.Conversely, a downward sloping moving average with the price belowcan be used to signal a downtrend.

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Figure 3Another method of determining momentum is to look at the order of a pair ofmoving averages. When a short-term average is above a longer-term average,the trend is up. On the other hand, a long-term average above a shorter-termaverage signals a downward movement in the trend.

Moving average trend reversals are formed in two main ways: when the pricemoves through a moving average and when it moves through moving averagecrossovers. The first common signal is when the price moves through animportant moving average. For example, when the price of a security that wasin an uptrend falls below a 50-period moving average, like in Figure 4, it is asign that the uptrend may be reversing.

Figure 4

The other signal of a trend reversal is when one moving average crossesthrough another. For example, as you can see in Figure 5, if the 15-day movingaverage crosses above the 50-day moving average, it is a positive sign that the

price will start to increase.

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Figure 5

If the periods used in the calculation are relatively short, for example 15 and 35,this could signal a short-term trend reversal. On the other hand, when twoaverages with relatively long time frames cross over (50 and 200, for example),this is used to suggest a long-term shift in trend.

Another major way moving averages are used is to identify support andresistance levels. It is not uncommon to see a stock that has been falling stop itsdecline and reverse direction once it hits the support of a major movingaverage. A move through a major moving average is often used as a signal bytechnical traders that the trend is reversing. For example, if the price breaksthrough the 200-day moving average in a downward direction, it is a signal thatthe uptrend is reversing.

Figure 6

Moving averages are a powerful tool for analyzing the trend in a security. Theyprovide useful support and resistance points and are very easy to use. The mostcommon time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to bea good measure of a trading year, a 100-day average of a half a year, a 50-dayaverage of a quarter of a year, a 20-day average of a month and 10-day averageof two weeks.

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Moving averages help technical traders smooth out some of the noise that isfound in day-to-day price movements, giving traders a clearer view of the pricetrend.

PATTERNS:

HEAD AND SHOULDERS

The Head and Shoulders formation is one of the most reliable and well knownof all the major reversal patterns. It is also one of the most popular formationsthat have been studied thousands of time by analysts.

On the Technical analysis chart, when aprice trend is in the process of reversaleither from abullish or bearish trend, a characteristic pattern takes shape and isrecognized as reversal formation.

Formations

Head and Shoulders Top

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Head and Shoulders Bottom

Head and Shoulders Top

Head and Shoulders formation consists of a left shoulder, a head, and a rightshoulder and a line drawn as the neckline. The left shoulder is formed at the endof an extensive move during which volume is noticeably high. After the peak ofthe left shoulder is formed, there is a subsequent reaction and prices slide downup to a certain extent which generally occurs on low volume. The prices rallyup to form the head with normal or heavy volume and subsequent reactiondownward is accompanied with lesser volume. The right shoulder is formedwhen prices move up again but remain below the central peak called the Headand fall down nearly equal to the first valley between the left shoulder and thehead or at least below the peak of the left shoulder. Volume is lesser in the rightshoulder formation compared to the left shoulder and the head formation. A

neckline is drawn across the bottoms of the left shoulder, the head and the rightshoulder. When prices break through this neckline and keep on falling afterforming the right shoulder, it is the ultimate confirmation of the completion ofthe Head and Shoulders Top formation. It is quite possible that prices pull backto touch the neckline before continuing their declining trend.

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Head and Shoulders Bottom

This formation is simply the inverse of a Head and Shoulders Top and oftenindicates a change in the trend and the sentiment. The formation is upside downin which volume pattern is different than a Head and Shoulder Top. Pricesmove up from first low with increase volume up to a level to complete the leftshoulder formation and then falls down to a new low. It follows by a recoverymove that is marked by somewhat more volume than seen before to completethe head formation. A corrective reaction on low volume occurs to startformation of the right shoulder and then a sharp move up that must be on quiteheavy volume breaks though the neckline.

Another difference between the Head and Shoulders Top and Bottom is that theTop Formations are completed in a few weeks, whereas a Major Bottom (Left,right shoulder or the head) usually takes a longer, and as observed, may prolongfor a period of several months or sometimes more than a year.

TRIANGLE

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When price fluctuation stay in a trading range and that trading range becomes

progressively smaller with the passage of time triangle formation occurs.Identifying triangle patterns allows for trading opportunity during formation

and after a breakout from the pattern. A triangle could signal reversal or

continuation of the trend but not very reliable formation. The Normal triangle

looks like.

Symmetrical Triangle:-

Descending Triangle

Ascending Triangle

These types of triangles usually have price movement from one end of

the triangle to the other and if the breakout occurs then the target price is equal

to the difference of the two points at the base of the Triangle and this target is

normally achieved at the point where the two lines of the Triangle meet in

terms oftime.

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Relative Strength Index(RSI)

RSI indicates overbought &oversold conditions. When the value of RSI isabove 70,then it indicates overbought. Here the stock price is undervalued,so it gives selling signal. When the value of RSI is below 30, then itindicates oversold . the stock price is overvalued, so it gives buying signal.

Importance of Neckline

The drawn neckline of the pattern represents a support level, and assumptioncannot be taken that the Head and Shoulder formation is completed unless it

is broken and such breakthrough may happen to be on more volume or maynot be. The breakthrough should not be observed carelessly. A serioussituation can occur if such a break is more than three to four percent.

When a stock drifts through the neckline on small volume, there may be awave up, although it is not certain, but it is observed, the rally normally doesnot cross the general level of the Neckline and before selling pressureincreases, the steep decline occurs and prices tumble with greater volume.

Characteristics

Most of the time Head and Shoulders are not perfectly shaped. Thisformation is slightly tilted upward or downward.

One shoulder may appear to droop. On many chart patterns, any one of the two shoulders may appear

broader than the other which is caused by the time involved in theformation of the valleys.

The neckline may not be perfectly horizontal; it may be ascending ordescending.

If the neckline is ascending then the only qualification of theformation lies in the fact that the lowest point of the right shouldermust be noticeably lower than the peak of the right shoulder.


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Usage as a tool

Head and Shoulders is an extremely useful tool after its confirmation toestimate and measure the minimum probable extent of the subsequent movefrom the neckline. To find the distance of subsequent move, measure thedistance from the peak of the head to the neckline. Then measure the samedistance down from the neckline to the point where prices penetrate theneckline after the completion of the right shoulder. This gives the minimumobjective of how far prices can decline after the completion of this topformation. In case, if the price advance preceding the Head and Shoulderstop is not long, the subsequent price fall after its completion may be small aswell.

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Example of daily intraday trading by using parameters of technical

analysis:

Analysis of the chart:

This is the chart of daily intraday trading at 21st June,2010. In this chart, wehave used three studies which include: moving average, RSI & volume. The

blue line shows 5days MA & the green line shows 21days MA. At thebottom of the chart the blue line shows the RSI value.

Moving Average

Time Price Buy/Sell Profit/Loss

10:19 185.5 Buy -

11:55 187.2 Sell 1.7

12:22 187.3 Buy

13:31 188.5 Sell 1.2

14:25 188.3 Buy

15:10 188.1 Sell (0.2)

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RSI

Time Value Buy/sell

11:13 71.55 Sell

12:45 70.27 Sell

12:55 80 Sell

15:22 26.38 buy

Volume

The volume study indicates that if we will take buy/sell decision, then thestudy shows whether the volume supporting or not.

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FOREIGN EXCHANGE

History

FOREX, an acronym for Foreign Exchange, is the largest financial marketin the world. With an estimated $1.5 trillion in currencies traded daily,Forex provides income to millions of traders and large banks worldwide.

The market is so large in volume that it would take the New York StockExchange, with a daily average of under $20 billion, almost three months toreach the amount traded in one day on the Foreign Exchange Market. Forex,unlike other financial markets, is not tied to an actual stock exchange. Forexis an over-the-counter (OTC) or off-exchange market.

The central government has wide powers to control transactions in foreignexchange. Until 1992 all foreign investments and the repatriation of foreigncapital required prior approval of the government. The Foreign-ExchangeRegulation Act, which governs foreign investment, rarely allowed foreign

majority holdings. However, a new foreign investment policy announced inJuly 1991 prescribed automatic approval for foreign investments in thirty-four industries designated high priority, up to an equity limit of 51 percent.Initially the government required that a company's automatic approval mustrely on matching exports and dividend repatriation, but in May 1992 thisrequirement was lifted, except for low-priority sectors. In 1994 foreign andnonresident Indian investors were allowed to repatriate not only their profits

but also their capital. Indian exporters are also free to use their exportearnings as they see fit. However, transfer of capital abroad by Indian

nationals is only permitted in special circumstances, such as emigration.Foreign exchange is automatically made available for imports for whichimport licenses are issued.

Because foreign-exchange transactions are so tightly controlled, Indianauthorities are able to manage the exchange rate, and from 1975 to 1992 therupee was tied to a trade-weighted basket of currencies. In February 1992,

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the government began moves to make the rupee convertible, and in March1993 a single floating exchange rate was implemented. In July 1995,Rs31.81 was worth US$1, compared with Rs7.86 in 1980, Rs12.37 in 1985,and Rs17.50 in 1990.

PURPOSE

The foreign exchange market is the mechanism by which currencies arevalued relative to one another, and exchanged. An individual or institution

buys one currency and sells another in a simultaneous transaction. Currencytrading always occurs in pairs where one currency is sold for another and isrepresented in the following notation: EUR/USD or CHF/YEN. Theexchange rate is determined through the interaction of market forces dealingwith supply and demand.

Foreign Exchange Traders generate profits, or losses, by speculatingwhether a currency will rise or fall in value in comparison to anothercurrency. A trader would buy the currency which is anticipated to gain invalue, or sell the currency which is anticipated to lose value against anothercurrency. The value of a currency, in the simplest explanation, is a reflectionof the condition of that country's economy with respect to other majoreconomies. The Forex market does not rely on any one particular economy.

Whether or not an economy is flourishing or falling into a recession, a tradercan earn money by either buying or selling the currency. Reactive trading isthe buying or selling of currencies in response to economic or politicalevents, while speculative trading is based on a trader anticipating events.

BACKGROUND

Historically, Forex has been dominated by inter-world investment and

commercial banks, money portfolio managers, money brokers, largecorporations, and very few private traders. Lately this trend has changed.With the advances in internet technology, plus the industry's uniqueleveraging options, more and more individual traders are getting involved inthe market for the purposes of speculation. While other reasons for

participating in the market include facilitating commercial transactions(whether it is an international corporation converting its profits, or hedging

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against future price drops), speculation for profit has become the mostpopular motive for Forex trading for both big and small participants.

8 MAJOR CURRENCIES

Whereas there are thousands of securities on the stock market, in theFOREX market there are 112 currencies from them below given arecurrencies are highly traded:

The U.S. Dollar ($),

European Currency Unit (),

Japanese Yen (),

British Pound Sterling (),

Swiss Franc (SF),

Canadian Dollar (Can$)

And to a lesser extent, the Australian and New Zealand Dollars.

These major currencies are most often traded because they representcountries with esteemed central banks, stable governments, and relativelylow inflation rates. Currencies are also always traded in pairs (i.e. USD/JPYor Dollar/Yen) at floating exchange rates.

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INTRODUCTION

If there was only one currency in the world, there would not have been anyneed for foreign exchange market, foreign exchange rates or foreignexchange. But in a world of many national currencies, the foreign exchangemarket plays the crucial role of providing the requisite machinery formaking payments across borders, transferring funds and purchasing powerfrom one currency to another, and determining the exchange rate.

The fundamental changes in foreign exchange, or FX, market began to take

form in 1970s along with the increasing internationalization of financialtransactions and the change of many economies into floating exchange ratesystem from fixed rate system. Over years, these changes have transformedthe foreign exchange market into the worlds biggest and most dynamicmarket. The daily turnover of global FX market currently amounts to manytrillions of dollars ($1 trillion = $1000 billion). In majority of thesetransactions, the U.S. dollar is on the one side.

Most FX market trades involve buying and selling bank depositsdenominated in different currencies. The major instruments used in the FX

markets are spot, outright forwards, FX swaps, currency options, currencyswaps, currency futures and exchange traded options.

Four key concepts are important in understanding the basics of the workingof this extremely complex market.

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Spot exchange rate: Spot rates are the rates at which different currenciesare traded for immediate exchange.

Forward exchange rate: This is the rate at which foreign currency dealersare willing to commit to buying or selling a currency in the future. Thisgives information about the view of market participants on whether thecurrency appreciates or depreciates in future.

Appreciation: The rise in the value of one currency relative to another iscalled appreciation. When the currency of your country appreciates relativeto another country, your countrys goods prices rise abroad and foreigngoods prices decline in your country. This will benefit domestic consumerswho buy foreign goods, but makes domestic businesses less competitive.

Depreciation: A decline in the value of one currency relative to another iscalled depreciation. When the currency of your country depreciates relativeto another country, your countrys goods prices decline abroad and foreigngoods prices rise in your country. This will benefit domestic businesses, butwill affect domestic consumers who buy foreign goods.

The market exchange rate between two currencies is determined by theinteraction of the official and private participants in the foreign exchangerate market. The official participants include the central banks and othermonetary agencies of the government. The private participants include

banks, other financial institutions, corporate and individuals.

An important concept that drives the forces of supply and demand in the FXmarket is the Law of One Price. It says that the price of an identical goodwill be the same throughout the world, regardless of which country producesit. Based on this, we can determine the exchange rate between currencies.For example, if the price of steel produced in the U.S. is $100 per ton andsteel produced in India is Rs. 5,000 per ton, the exchange rate betweendollar and rupee would be Rs.50/$1.

The factors affecting the exchange rates in the long run include relative pricelevels in each country, preferences for domestic vs. foreign goods,

productivity and government controls. The buying and selling of currencyby the policy makers to control the supply and demand in the FX marketinfluence exchange rates in countries like India.

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FX market in India

As in the rest of the world, in India too, foreign exchange market is thelargest financial market in existence. The phenomenon that has dramaticallychanged Indias foreign exchange market was liberalization of economy

started during early 90s. In 1993, central government replaced theprevailing fixed exchange rate system with a less regulated market drivenarrangement. Even though this cannot be called as a fully floating exchangerate system like the U.S., in the Indian scenario it is working well. In thecurrent system, the Reserve Bank of India and its affiliates intervene in themarket whenever they decide it is necessary.

The major participants in Indian FX market are the buyers, sellers, marketmediators and the authorities. Besides the countrys commercial capitalMumbai, centers for foreign exchange transactions in India include Kolkata,

New Delhi, Chennai, Bangalore, Pondicherry and Cochin.

The FX market in India is regulated by The Foreign Exchange ManagementAct, 1999 or FEMA, which replaced the old Foreign Exchange RegulationAct, 1947. Now, the regulators have introduced several innovations to

promote the growth of FX market in India. The introduction of currencyfutures in India in 2009 was such as step. This has given the FX market

participants in India a new kind of financial instrument, which is available indeveloped markets.

Although no one expects the transformation of India to a fully market drivenfloating foreign exchange system any time soon, there are many possibilitiesfor further loosening of controls. The permission for the introduction of newFX derivatives following the path of currency futures is also expected.

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HOW CURRENCIES ARE TRADED?

The Foreign exchange market is a nonstop cash market where currencies ofnations are traded, typically viabrokers. Foreign currencies are constantly

and simultaneously bought and sold across local and global markets andtraders' investments increase or decrease in value based upon currencymovements. Foreign exchange market conditions can change at any time inresponse to real-time events.

The participants in the currency exchange markets have traditionally beenthe central and commercial banks, corporations, institutional investors, andhedge funds managers. In 2002, Bank of America alone made a $530Million profit in Forex trading as stated on their annual statement under"Global Investment Income". In 1986, Caterpillar made a 100 Million profit

in Forex trading and would have actually had an operating loss for the yearon their normal business if it were not for that profit from Forex. In 2003,half of Daimler Chryslers 2Q operating profit was from currency trades,making more money on foreign exchange than by selling cars.

Due to its popularity and the potential for very lucrative returns oninvestment, many private investors have also migrated into this fast growingarena. Some of the major reasons why private investors are attracted tocurrency exchange market and short-term Forex trading are:

* The Forex market is open for business around the clock. Nonstop 24hours a-day 7 days a-week access to global Forex dealers is at the disposalof the trader.

* The Forex market is the biggest market in the world. It is an enormousliquid market, with a daily turnover of more than 2.5 trillion dollars, makingit easy to trade most currencies around the clock.

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* The Forex markets can be very volatile due to the interdependencies of theworld economy on current events. As such, the Forex market offersopportunities for huge profit potentials that are derived from volatilities ofworld currency prices.

* The Forex Market contains inherent standard instruments for controllingrisk exposure.

* An investor has the ability to profit in both a rising and falling market.

* The investor can maintain leveraged trading with relatively low marginrequirements.

* The Forex trader has many options for zero commission trading.

Just like in any other market, the goal of the investor in Forex trading is tomake profits from price movements. In Forex trading, an investor makesmoney by trading foreign currencies and the trading is always done incurrency pairs. For example, the exchange rate of EUR/USD on Jan 15th,2004 was 1.0757. This number is also referred to as a "Forex rate" or just"rate" for short. If the investor had bought 1000 Euros on that date, he wouldhave paid 1075.70 U.S. dollars. One year later, the Forex rate was 1.2083,which means that the value of the euro (the numerator of the EUR/USDratio) increased in relation to the U.S. dollar. The investor could now sell the

1000 Euros in order to receive 1208.30 dollars. Therefore, the investorwould have USD 122.90 more than what he had started one year earlier.However, to know if the investor made a good investment, one needs tocompare this investment option to alternative investments. At the veryminimum, the return on investment (ROI) should be compared to the returnon a "risk-free" investment. One example of a risk- free investment is long-term U.S. government bonds since there is practically no chance for adefault, i.e. the U.S. government going bankrupt or being unable orunwilling to pay its debt obligation.

The whole premise behind trading currencies is that, the investor trades onlywhen he expects the currency that he is buying to increase in value relativeto the currency he is selling. If the currency he is buying does increase invalue, he must sell back the other currency in order to lock in a profit. Anopen position is a trade in which a trader has bought or sold a particularcurrency pair and has not yet sold or bought back the equivalent amount to

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close the position. However, it is estimated that anywhere from 70%-90%of the FX market is speculative. In other words, the person or institution that

bought or sold the currency has no plan to actually take delivery of thecurrency in the end; rather, they were solely speculating on the movement of

that particular currency. Most of the remaining percentage of the forexmarket belongs to hedging (managing business exposures to variouscurrencies) and other activities. Forex trades (trading onboard internet

platforms) are non-delivery trades, i.e., currencies are not physically traded,but rather there are currency contracts which are agreed upon andperformed. Both parties to such contracts (the trader and the tradingplatform) undertake to fulfill their obligations: one side undertakes to sellthe amount specified, and the other undertakes to buy it. As mentioned,over 70% of the market activity is for speculative purposes, so there is nointention on either side to actually perform the contract (i.e., the physical

delivery of the currencies). Thus, the contract ends by offsetting it againstan opposite position, resulting in the profit and loss of the parties involved.An example of a trading platform is the Easy-Forex Trading Platform. Afree video lesson in trading the forex market using Market Club chartinganalysis can be downloaded from the ino.com website.

Spreads

Spreads are the difference between Buy and Sell ( or BID and ASK). Inother words, this is the difference between the market maker's selling price

(to its clients) and the price the market maker buys it from its clients. If aninvestor buys a currency and immediately sells it ( and thus there is nochange in the rate of exchange), the investor will lose money. The reason forthis is the spread. At any given moment, the amount that will be received inthe counter currency when selling a unit of base currency will be lower thanthe amount of counter currency which is required to purchase a unit of basecurrency. For example, the EUR/USD bid/ask currency rates at your bankmay be 1.2015/1.3015, representing a spread of 1000 pips (percentage in

points; one pip=.0001). Such a rate is much higher that the bid/ask currency

rates that online Forex investors commonly encounter, such as1.2015/1.2020, with a spread of 5 pips. In General, smaller spreads are

better for Forex investors since they require a smaller movement inexchange rates in order to profit from a trade.

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Price, Quotes and Indications

The price of a currency (in terms of the counter currency), is called "Quote".There are two kinds of quotes in the Forex market:

The Direct Quote: the price for 1 US dollar in terms of the other currency,e.g. - Japanese Yen, Canadian dollar, etc.

The Indirect Quote: the price of 1 unit of a currency in terms of US dollars,e.g. - British pound, euro.

The market maker provides the investor with a quote. The quote is the pricethe market maker will honor when the deal is executed. This is unlike an"indication" by the market maker, which informs the trader about the market

price level, but is not the final rate for a deal.

Cross rates - any quote which is not against the US dollar is called "cross".For instance, GBP/JPY is a cross rate, since it is calculated via the USdollar. Here is how the GBP/JPY rate is calculated:

GBP/USD = 1.7464

USD/JPY = 112.29

Therefore: GBP/JPY = 112.29 X 1.7464 = 196.10

The Exchange Rate

Because currencies are traded in pairs and exchanged one against the otherwhen traded, the rate at which they are exchanged is called the exchangerate. The majority of the currencies are traded against the US dollar (USD).The four next-most traded currencies are the euro (EUR), the Japanese yen(JPY), the British pound sterling (GBP) and the Swiss franc (CHF). Thesefive currencies make up the majority of the market and are called the major

currencies or "the Majors". Some sources also include the Australian dollar(AUD) within the group of major currencies.

The first currency in the exchange pair is referred to as the base currencyand the second currency as the counter or quote currency. The counter orquote currency is thus the numerator in the ratio, and the base currency isthe denominator. The value of the base currency (denominator) is always 1.

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Therefore, the exchange rate tells a buyer how much of the counter or quotecurrency must be paid to obtain one unit of the base currency. The exchangerate also tells a seller how much is received in the counter or quote currencywhen selling one unit of the base currency. For example, an exchange rate

for EUR/USD of 1.2083 specifies to the buyer of Euros that 1.2083 USDmust be paid to obtain 1 euro.

At any given point, time and place, if an investor buys any currency andimmediately sells it - and no change in the exchange rate has occurred - theinvestor will lose money. The reason for this is that the bid price, whichrepresents how much will be received in the counter or quote currency whenselling one unit of the base currency, is always lower than the ask price,which represents how much must be paid in the counter or quote currencywhen buying one unit of the base currency. For instance, the EUR/USD

bid/ask currency rates at your bank may be 1.2015/1.3015, representing aspread of 1000 pips (also called points, one pip = 0.0001), which is veryhigh in comparison to the bid/ask currency rates that online Forex investorscommonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. Ingeneral, smaller spreads are better for Forex investors since even theyrequire a smaller movement in exchange rates in order to profit from a trade.

Margin

Banks and/or online trading providers need collateral to ensure that theinvestor can pay in case of a loss. The collateral is called the margin and isalso known as minimum security in Forex markets. In practice, it is adeposit to the trader's account that is intended to cover any currency tradinglosses in the future. Margin enables private investors to trade in markets thathave high minimum units of trading by allowing traders to hold a muchlarger position than their account value. Margin trading also enhances therate of profit, but has the tendency to inflate rates of loss, on top of systemicrisk.

Leveraged Financing

The ratio of investment to actual value is called "leverage". Leveragedfinancing, i.e., the use of credit, such as a trade purchased on a margin, isvery common in Forex. Using a $1000 to buy a Forex contract with a$100,000 value is "leveraging" at a 1:100 ratio. The invested amount of

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$1000 is all that is under risk in order to achieve the gain of $100,000. Theloan/leveraged in the margined account is collateralized by an investor'sinitial deposit. As a result, this may result in being able to control $100,000for as little as $1,000.

Five ways private investors can trade in Forex directly or indirectly:

* The spot market

* Forwards and futures

* Options

* Contracts for difference

* Spread betting

Spot transaction

A spot transaction is a direct exchange of one currency for another. The spotrate is the current market price, otherwise known as the benchmark price.Spot transactions do not require immediate settlement, or on-the-spot

payment. The settlement date, or "value date," is the second business day

after the "deal date" (or "trade date") on which the transaction is agreed toby the two traders. The two-day period provides time to confirm theagreement and arrange the clearing and necessary debiting and crediting of

bank accounts in various international locations.

Risks

Although Forex trading can lead to very profitable results, there are risksinvolved: exchange rate risks, interest rate risks, credit risks, and countryrisks. About 80% of all currency transactions last a period of seven days orless, and over 40% of forex trades will last no more than two days. Giventhe extremely short lifespan of the typical trade, technical indicators heavilyinfluence entry, exit and order placement decisions.

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FOREIGN EXCHANGE CHARTS:

Here we have used only simple moving average study. The three linesof MV are used which are:5days,21days &50days. We have to consider twolines for making the decision regarding buying or selling of currency.Whenever the two lines cross it gives buying/selling signal. There arevarious charts of foreign exchange trading which are given below:

EUR/USD:

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JPY/INR:

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GBP/INR:

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CONCLUSION

In this study I have examined the ability of technical rules namely, the bulland double bottom pattern, to increase the probability of winning in theforeign exchange market relative to the theoretical probability. The latterwas computed on the basis of efficient hypothesis, implying among otherthings, that foreign exchange rate follow a simple random walk.

In the course of my analysis I tested five strategies for the worlds eight

major currencies pair on the data set covering thirty days, which allow me toformulate two stylized fact that simultaneously demonstrate the technicalanalysis potential for profitability, and the difficulty of its practicalapplication.

The bull and the double bottom technical analysis rule increase on averagethe probability of winning compared to what is stipulated by the efficientmarket hypothesis.

It is hardly possible to indicate strategy in terms of trading rule and a

combination of stop loss and stop limit values, which would consistentlyresult in positive profits in the case of all currency pairs.

The two stylized fact above help explain the persistent popularity oftechnical analysis rules among popular traders on one hand and the lack ofsure fire trading strategies on the other hand. Indeed while technicalanalysis appears to be increasing the probability of winning, the lack ofsystematic pattern in the winning strategies parameters and underlyingtechnical trading rules makes it difficult, if not possible, to use technicalanalysis for reaping consistent positive returns.

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BIBLIOGRAPHY

WEBSITES:

www.spancaplease.com

www.tradersedge.com

www.sebi.gov.in

www.yahoofinance.com

www.nseindia.com

www.bseindia.com
http://www.tradersedge.com/http://www.sebi.gov.in/http://www.yahoofinance.com/http://www.nseindia.com/http://www.bseindia.com/http://www.tradersedge.com/http://www.sebi.gov.in/http://www.yahoofinance.com/http://www.nseindia.com/http://www.bseindia.com/

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