Model Project.docx

A STUDY ON TECHNICAL ANALYSIS ON FOREX MARKET WITH REFERENCE TO STAR FING PVT LTD, CHENNAI

INTRODUCTION:

Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.9 trillion changing hands daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. Unlike other financial markets, the Forex market has no physical location and no central exchange (off-exchange). It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers

STRUCTURE  Decentralized 'interbank' market  Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators.  The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971  Online trading began in the mid to late 1990's  TRADING HOURS   24 hour market  Sunday 5pm EST through Friday 4pm EST.  Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America. SIZE  One of the largest financial markets in the world  $4.0 trillion average daily turnover, equivalent to:

o More than 12 times the average daily turnover of global equity markets o More than $500 a day for every man, woman, and child on earth o An annual turnover more than 10 times world GDP. The spot market accounts for over one-third of daily turnover

MAJOR MARKETS  The US & UK markets account for over 50% of daily turnover  Major markets: London, New York, Tokyo  Trading activity is heaviest when major markets overlap

MARKET SIZE AND LIQUIDUTY

The foreign exchange market is unique because of: 

Its trading volumes

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The extreme liquidity of the market

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Its long trading hours

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The variety of factors that affect exchange rates

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The use of leverage

 Because foreign exchange is an OTC (Over The Counter) market where brokers/dealers negotiate directly with one another there is no central exchange or clearing house. IMPORTANT TERMS IN FOREX MARKET

The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200.

Currency Pair The two currencies that make up an exchange rate. When one is bought, the other is sold, and vice versa.

Base Currency The first currency in the pair. Also the currency your account is denominated in.

Counter Currency The second currency in the pair. Also known as the terms currency.

MARKET PARTICIPANTS According to the study BIS Triennial Central Bank Survey 2004  53% of transactions were strictly interdealer (ie interbank);  33% involved a dealer (ie a bank) and a fund manager or some other non-bank financial institution;  And only 14% were between a dealer and a non-financial company.  

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching, the Chicago Mercantile Exchange, Bloomberg and Trade Book. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago

Central Banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves, to stabilize the market. Milton Friedman argued that the

best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high - that is, to trade for a profit. Nevertheless, central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading. The mere expectation or rumour of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank

Investment Management Firms

Investment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.

Some investment management firms also have more speculative specialist currency overlay units, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. The number of this type of specialist is quite small, their large assets under management (AUM) can lead to large trades.

Hedge Funds

Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favour

Retail Forex Brokers

Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."

All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.

In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").

SPECULATORS

Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view. It is simply gambling, that often interferes with economic policy.

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling.

COMPANY PROFILE

At StarFing Private Limited is a leading stock, share, currency & commodity broking headquartered in India. We operate on a unique retail focused stock trading model that provides revolutionary trading platforms and expertise to a diversified client base. Star Fing Corporate Identity Number U74999KA2018PTC117623. KR03D0029133 (2011), & 3/93/5/3594/2014 and also SEA-HYD-ALO/03/74653/2018 We are registered in Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and the two leading Commodity Exchanges in the county MCX & NCDEX. Exchange Registration Details 

AP0397134991 (NSE)

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AP0397134991 (NSE-SX)

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AP0397134991 (NSE F&O)

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AP0106120157353 (BSE)

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AP0106120157353 (BSE F&O)

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AP 111340(MCX)

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AP 111340 (NCDEX)

We also provide training, we are with a simple aim, we teach you how to invest your money and make profits. If you have ever considered… how to be a trader, what to trade, what trading software to use or just how you can learn about the market….look no further. With our trading program we offer a full range of financial training course all based on price action trading so whether you are interested in trading futures markets, Commodities, or day trading the currency markets we can teach you how to trade consistently and profitably.

We believe at Training Traders we can offer the very best Training, Coaching and follow up Mentorship available anywhere. Your Training Course is just the beginning of your journey. We take great care and pride in offering strong Mentorship and Coaching follow up. It does not matter if you are a new trader or experienced – the education process never ends. No two days are the same in Markets and all traders learn or should learn every day. We are committed to providing world-class products and services which exceed the expectations of our customers, achieved by teamwork and a process of continuous improvement It is our faith in Indian Stock and Commodities market that has helped us in creating a satisfied client base that runs into lakhs It is the faith of our clients in our excellent research, prompt and quality services, which have seen them, smile even during the most turbulent times in financial markets

MISSION Star Fing mission is to provide comprehensive and innovative brokerage solutions backed-up by reliable support services at extremely competitive prices to our clients. VISION Star Fing vision is to remove ‘complexity’ out of the ‘trading equation’. We also envisions becoming one of the leading financial service providers in the country .

SERVICES 

Advisory Services

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Financial Services

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Franchisee Services

ADVISORY SERVICES

We at Star Fing (Star Financial Group) focus in training and educating individuals about financial market and to sharpen their skills to participate in the financial world. Star Fing came

alive with the intention to provide support and guidance to new comers to the trading world. With our knowledge and years of experience in trading we have customized the training program and made it simple for a layman to understand the financial market. Our courses are targeted for individual investors or traders, novice or experienced, who want to learn how to use the same tools and techniques as the professional traders. These courses offer a complete education and training experience focusing on trading fundamentals, technical analysis, risk management, and highly-developed skills of execution for virtually any trading instrument. At Star Fing we are with a simple aim, we want to teach you how to invest your money and make profits. If you have ever considered… how to be a trader, What to trade, what trading software to use or just how you can learn about the market….look no further. With our trading program we offer a full range of financial training course all based on price action trading so whether you are interested in trading futures markets, Commodities, or day trading the currency markets we can teach you how to trade consistently and profitably. We believe at Training Traders we can offer the very best Training, Coaching and follow up Mentorship available anywhere. Your Training Course is just the beginning of your journey. We take great care and pride in offering strong Mentorship and Coaching follow up. It does not matter if you are a new trader or experienced – the education process never ends. No two days are the same in Markets and all traders learn or should learn every day. Financial Planning: As you ascend newer highs in your life, your aspirations and needs grow proportionately. These ever-increasing needs are further compounded by inflation, which depreciates the purchasing power of your hard-earned money. To achieve your dreams and fulfill your future obligations, you need to carefully plan your finances. This can be done via sound financial planning that takes into account your current and future needs, your individual risk profile and your income to chart out a roadmap to meet these anticipated needs. Investment Planning: Placing of funds into the proper investment vehicles based on the investor’s future goals, time horizon and priorities. This also takes into account the safety of the investments as well as liquidity and level of return. Ideally, proper investment planning will allow the investor’s funds to produce financial rewards over time.

Risk Management: Risk management is the continuing process to identify, analyze, evaluate, and treat loss exposures and monitor risk control to mitigate the adverse effects of loss. While a variety of different strategies can mitigate or eliminate risk, the process for identifying and managing the risk is fairly standard First, threats or risks are identified. And then the vulnerability of key assets like information to the identified threats is assessed. FRANCHISEE SERVICES Have you always wanted your own business where you define the rules and the profits? Have you been passionate about the financial markets and have wondered with awe about the great potential it offers. Do you have the people skills with the business skills to grow your own business in the world of financial markets? If all of this rings a bell and makes you excited, we at “Star Fing”, have an irresistible offer for you. We are providing a once in a lifetime opportunity to you to grow your own business, and take the financial markets by storm. We are offering you a Franchisee of our broking business arm in collaboration with Familiar Brokers. They are providing Comprehensive and innovative Brokerage solution backed-up by reliable support services at extremely competitive prices to our clients. The features of the deal are as follows: Decide your own brokerage: You can decide what brokerage you want to charge from your clients, it can be as lowest price 10 to as high as Rs 5000/ Crore or even more. Anything that lets you grow your business and gain desirable profits. Share in profits: Whatever business/brokerage you generate, you can keep 70% of that and 30% has to be shared with the company. And as you go on to grow your business and meet certain business objectives you will be provided with incentives ranging from a higher percentage in brokerage to monetary rewards.

Back office support: We provide you with a back office dashboard to keep track of all your clients. It provides useful insights and analytics so that you get actionable insights for your business. When you partner with Starfing you can rest assured that you will be provided with the best back office support, may it be in terms of client on boarding, form filling, other general queries, trading queries or any problem or queries you face (if any). Trading software: We provide you with the NEST trading platform. And also providing Mobile Platform services 

Trading Platform – web-based and desktop-based trading facilities.

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Online Back Office for easy access of investment records.

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Electronic Communication – E – Contract Notes, Ledger Statements, and the like.

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Dedicated team of Trained Executive to address all your concerns.

OBJECTIVES

Primary •

A study on Technical Analysis on Forex Market with reference to

Star Fing Pvt Ltd, Chennai.

Secondary

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To analyse the Price Fluctuation of selected pairs in the Forex market.

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To analyse and interpret the direction of currency price movement in

Forex market through various tools of technical analysis. •

To identify the returns from the good pair in forex market.

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To suggest the investor regarding investment decisions using various technical tools

SCOPE

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The study focuses on forex market and its history and latest

developments in Forex market. •

Currency trading is, in a lot of ways, more beneficial than trading stocks.

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Traders can choose their most feasible time to do trading business with

Forex day-trading, as it is a 24/5 market. •

Traders need to focus on several leading currencies only, instead of

on thousands of stocks.

LIMITATIONS

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The study is confirmed only for major currencies.

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Analysis period is limited to 6 months.

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Data were analysed using the Demo account of the company

LITERATURE REVIEW “YOU CAN MAKE A KILLING IF YOU GUESS RIGHT. That's the allure. A $5,000 trade to buy the euro and simultaneously sell the dollar, entered the afternoon of July 10 and leveraged 100 to 1, had soared to $12,850 just 24 hours later, after the euro rose nearly two U.S. cents on the news that mortgage giants Fannie Mae and Freddie Mac were teetering on the brink. AND IF YOU GET IT WRONG? You can lose all your money.” (Kosnett, 2008) The above vignette gives a gist about scope of profit making in currency trading using technical analysis which though not an easy task conjecturally speaking isn’t even one which cannot be mastered with thorough knowledge and discipline. Also a lot depends on the financial behaviour of a particular participant (Hilton, 2001). Mastery is required as the risk involved is considerably high. (Bredin et al., 2004) “The sample studied (1990–1998) represents a period where the foreign exchange rate risk represented an important part risk. This research represents the first part of a comprehensive study which will analyse the risks faced by firms/banks in the Irish market. The study focuses on the foreign exchange market, which was certainly faced with a high degree of volatility over the early part of the study period.” The preferred risk-reward ratio differs individual to individual and is highly influenced by the personality traits and risk perception of an investor as explained by (Chitra et al., 2011) be it any security – Currency, Commodity, Equity etc.

The Foreign Exchange Market The Foreign Exchange market stands alone as the largest and most liquid markets in the world with trillions being traded daily. Open 24 hours a day, five days a week, this asset class is available to everyone from national banks and international corporations to the individual day trader.

The market tops $4 trillion in average daily turnover (McFarlin, 2010). He also points out that trading in Foreign Exchange means exchanging one currency in return of another either to hedge impending risk due to exposure in a specific currency or to profit from exchange rate movements. The currency can be traded either in the Spot Market, Forwards/Futures market, ETF‟s or Options Market. It was found that recently the spot market dominates price discovery (Rosenberg, 2009). Till date, many traders mostly trade certain currencies vs. the U.S. dollar only. That restricts the trades to dollar fundamentals, sometimes at the expense of the fundamentals of the other side of the trade. Traders can even expand their opportunities by trading cross pairs where in US Dollar has been used as a vehicle currency (Chelkowski, 2010). Glen Arnold et al. in the book Corporate Financial Management have highlighted that in the Foreign Exchange market most of the trades are between banks for speculation rather than for underlying export or import. The results of the study done by (Ramcharran, 2000) signify this as it shows a strong relationship between the trading income of banks and exchange rate volatility. But those trades that are done against genuine exposure can affect the following entities: 1. Receipts for Export 2. Payment of Imports 3. Valuation of foreign assets and liabilities 4. Long-term viability of overseas operations 5. Feasibility of a foreign project

Additionally, even if one does not trade in Foreign Exchange Market directly, the value of any currency in terms of another can sometimes affect the market you watch more than any other variable (Murphy, 2004).

Believers of random-walk theory say that investors can't beat the stock market because news travels too rapidly. When a new bit of information emerges, investors react to it almost instantly, bidding a stock's price up or down until it reaches a new equilibrium. Therefore, the only things that the market hasn't taken into account are things that haven't happened yet. Those events are, by definition, random. Thus in other words, they believe that any amount reasoning cannot help in predicting the market (Coy, 1999).

But those who do reason they do it either fundamentally or technically. These are the ones who believe that an informationally efficient market reflects relevant information fully and promptly (Liu, 2007). And some do it really well, Investigation of an index of returns on professionally managed currency funds showed that over the 1990-2006 period, currency fund managers earned excess returns averaging 25 bps per month using 4 distinct styles of currency trading - carry, trend, value, and volatility. The study also inferred that Trend strategies have celebrated an unexpected revival (Levich et al., 2008).

Forecasting Markets - Fundamental Factors versus Technical Indicators Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies. On the other hand, Technical analysis is the evaluation of securities/assets by means of studying statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value but instead use charts to identify patterns and trends that may suggest what the security will do in the future. (Venkatesh et al., 2011) and (Talati, 2002)

One type of technical Analysis - Elliott Wave Theory claims that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves thus helping the trader and investor to reduce risk and maximize profit (Dharmaraj et al, 2011). Same are the uses of any other type of technical analysis tool. In other words, Technical analysis focuses exclusively on the study of market action while fundamental analysis focuses on the underlying economic forces of supply and demand that cause prices to move up or down or stay the same. In accepting the premise of technical analysis, one can see why technicians believe their approach is superior to the fundamentalists. If the fundamentals are reflected in market price, then the study of those fundamentals becomes unnecessary (Murphy, 1999).

Technical Analysis

Technical analysis is a constantly evolving emerging science because quantitative methods for evaluating price movement to make trading decisions have now become a dominant part of current market analysis. Detecting new trends early using mechanical trading rules in technical analysis is one of the techniques that professional traders use to make abnormal returns above the benchmark return of the passive buy-and-hold policy (Azizan et al., 2010).

Rationale of Technical Approach of Forecasting Most technical chartists concur that much of what we call Technical Analysis today has its origins in theories first proposed by Dow around the turn of the century. Dow Theory still forms the cornerstone of the study of technical analysis, even in the face of today‟s sophisticated computer technology, and the proliferation of newer and supposedly better technical indicators (John Murphy, 1999).

(Krishnan et al., 2009) very clearly indicate that technical analysis is profitable in currency trading in foreign exchange spot market, which is proven by the fact that all the four currency pairs, six time frames and ten indicators under consideration yielded trading profits in foreign spot market. (Bettman et al., 2009) state that, “Testing confirm the complementary nature of fundamental and technical analysis by showing that, although each performs well in isolation, models integrating both have superior explanatory power.”

In another paper (Caginalp et al., 1998) evidence is provided that traders are influenced by price behavior in short term.

The results of the study conducted by (Okunev et al., 2003) indicates that the potential exists for investors to generate excess returns in foreign exchange markets by adopting a momentum strategy using the moving average rules identified in this paper. It is not at all apparent that foreign exchange markets operate in an efficient manner and that returns are determined entirely by fundamental information. In fact, very simple technical rules can generate quite significant returns beyond those that can be explained by transactions costs or risk.

(Venkatesh et al., 2011) inferred that at shorter horizons there exists a skew towards reliance on Technical Analysis, while the skewness moves towards fundamental analysis for long term Investments. Trend strategies applied to currencies show the best results over medium-term rebalancing cycles of 3–6 months (Mettler et al., 2010).

(Middleton, 2005) also cites that trend trading remains a dominant style of managing currencies. People still keep on raising doubts about the trending of the currency market and whether charts can be used to forecast future movements. The profitability of technical currency trading has been declining since the late 1980s (Schulmeister, 2008). There is evidence that there are lower returns from trend-trading than before, but the recent trading profits for exotic currencies are still attractive (Pukthuanthong et al,. 2007).

Japanese Candlestick as a Technical Analysis Tool: (Steve Nison,2001) in his book on Japanese candlestick techniques mentions that Japanese Candlestick technique is a versatile tool that can be fused with any other technical tool, and will help improve any technician's market analysis.

Some researchers (Northcott, 2009) provide a warning that candlesticks should never be used alone to make a trading decision. They don‟t show enough about the rest of the price activity, and their interpretation often depends on the trend they are in. One should determine the overall market position using conventional technical indicators before entering into a trade. Candlesticks work best at indicating reversal points when the price is overbought or oversold, in which case they can help with the timing of your entry. In this situation, a Doji candle indicates that no one is in charge, neither bulls nor bears, so the trend is neutral. Individual candlesticks such as the hanging man and hammer formations display a wealth of information and can indicate the probability of a one-day reversal, but there is also the possibility that they could simply be outliers, so patterns made of multiple candlesticks can offer confirmation that the reversal is real (McMahon, 2007).

There are hundreds of named candlestick patterns, but many traders choose a few that seem to work best for them in the markets they trade. The successful interpretation of them all

comes back to the basic ideas expressed above (Northcott, 2009). Which of these are best suited for the Indian market is what this paper intends to find out. Also, whether the Japanese Candlestick work in the Indian Currency market by itself, or do they need support of Western Technical Indicators and Fundamental factors is another aspect that will be interrogated. Technical Analysis in Indian Context Though the basic tenets of trading using any technical indicator should generally remain the same, it may at times vary depending upon the convertibility of a currency and maturity of the market. For India it may depend on things like the trends in inflows of foreign capital into the country. It is also known that, Reserve Bank of India often prevents the exchange rate appreciation associated with rising capital inflows by accumulating foreign exchange reserves and foreign investments (Singh et al, 2010). Similarly, Reserve Bank of India at times also prevents depreciation. It is thus necessary to study the Candlestick Charting Techniques in Indian context and develop suitable strategies as at this point of time India is still in the transition stage to fuller openness (Chakravarty, 2011).

RESEARCH METHODOLOGY

Research means searching for the facts searching for the replies to the various queries and also for the solutions to the various problems. Research is an inquiry or an investigation with a specific purpose to fulfil, it helps in clearing the various doubtful concepts and tries to solve or explain the various unexplained procedures or phenomenon.

RESEARCH DESIGN

The search design is used in the study in analytical. In analytical research the researcher has to use facts or information already exists and analyse these to make a critical evaluation of material. So the research has to analyse the commodity future and spot closing prices which is a historical data and derive conclusion from it.

UNIVERSE The segment indentified for concluding the study is FOREX. Samples are selected on the basis of top traded pairs in FOREX. Market capitalism is the basis for understanding the top traded pairs.

SAMPLE DESIGN FOREX offers more than 50 pairs. MAJOR currency pairs are the mostly traded currency pairs in FOREX.

SAMPLES Four pairs are selected, they are 

EURO/USD

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USD/JPY

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AUD/USD

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GBP/USD

TOOLS FOR THE ANALYSIS 

MOVING AVERAGE

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RELATIVE STRENGTH INDEX (RSI)

TECHNICAL ANALYSIS

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security's intrinsic value, technical analysts focus on patterns of price movements, trading signals and various other analytical charting tools to evaluate a security's strength or weakness.

Technical analysis can be used on any security with historical trading data. This includes stocks, futures, commodities, fixed-income, currencies, and other securities. In this tutorial, we’ll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is far more prevalent in commodities and forex markets where traders focus on short-term price movements.

MOVING AVERAGE

An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially weighted moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average (SMA), which applies an equal weight to all observations in the period.

Initial SMA: 10-period sum / 10 Multiplier: (2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.1818 (18.18%) EMA: {Close – EMA (previous day)} x multiplier + EMA (previous day).

The EMA is a moving average that places a greater weight and significance on the most recent data points.

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Like all moving averages, this technical indicator is used to produce buy and sell signals based on crossovers and divergences from the historical average.

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Traders often use several different EMA days - for instance 20-day, 30-day, 90-day, and 200-day moving averages.

RELATIVE STRENGTH INDEX The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. Traditional interpretation and usage of the RSI is that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition. 100 RSI = 100 -

-------1 + RS

RS = Average Gain / Average Loss 

The RSI is a popular momentum oscillator developed in 1978.

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The RSI compares bullish and bearish price momentum plotted against the graph of an asset's price.

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Signals are considered overbought when the indicator is above 70% and oversold when the indicator is below 30%.