A

Project
P Repport

On

“A Study on Technicall Analysis and Proceedures Followed

For Commodity Trading with S Special
Refference to Gold.”

At

“Royal Future Co
onsultant India Pvtt. Ltd”

Submiitted to Sav
vitribaiPhuule Pune U
University

In Partiall Fulfilmen
nt of Requiirements foor Award oof

Master
M of Business
B A
Administrattion

By

Aish
hwaryaGaaikwad

Under the guiddance of

“CA. SonaliSarripalli”

nhgad Institute of Bussiness Adm

Sin ministrationn and Reseearch

 
 
 2014-2016

 
 
 hgad Instiitute of Business Administr
Sinh A ration and
d Researrch, Kond
dhwa
(B
Bk.), Pun
ne

Instituttion Apprroval Lettter

Summe
er Internship Progrram

Mr/Ms Aishwarya
aGaikwad of batch 2014-2016
2 is granted
d permissio
on by the institute
i

to do the Summ
mer Intern
nship Proje
ect title “A
A Study on
o Techniccal Analyssis and

dures Follo
Proced owed for Commodity
C ence to Gold.” at
y Trading with Speccial Refere
t
th th
Royal Future
F Con
nsultant India Pvt.Ltd
d during18 May 201
15 to 16 J
July 2015.

CA. SonnaliSaripallli Dr. Avad

dhoot Pol

Projectt Guide Directo

or

Place:

Date:

1 
 
 DECLARATION

I, the undersigned, hereby declare that the Project Report titled “A Study on Technical
Analysis and Procedures Followed For Commodity Trading with Special Reference to Gold.”
written and submitted by me to Savitribai Phule Pune University in partial fulfilment of the
requirement for the award of MASTER OF BUSINESS ADMINISTRATION is my original
work and the conclusions drawn therein are based on the material collected by myself.

Place: AishwaryaGaikwad

Date:

2 
 
 CERTIFICATE

This is to certify that the Project Report titled “A Study on Technical Analysis and
Procedures Followed For Commodity Trading with Special Reference to Gold.” which is
being submitted herewith for theaward of Master of Business Administration, Pune is the
result of the original research work completed by Aishwarya Gaikwad under my supervision
and guidance and to the best of my knowledge and belief the work embodied in this Project
Report has not formed earlier the basis for the award of any degree or similar title of this or
any other University or examining body.

CA. SonaliSaripalli Dr.Avadhoot Pol

Project Guide Director

3 
 
 ACKNOWLEDGEMENT

I am extremely grateful to my project guide Mr. Mukesh lokhande (Financial Analyst), Royal
future consultant India Private Limited, for helping me complete this project successfully &
providing all the necessary inputs & guidance during the course of the project.

I would also like to thank Mr. Manoj lad (Branch Manager), for his constant guidance &
encouragement throughout the course of the project. I am also thankful to him for sharing his
experience, knowledge & valuable suggestions at various phases of the project.

I am extremely grateful to Royal Future Consultant Private Limited, for giving me the
opportunity to work as summer intern.

I would like to express my sincere thanks to my faculty guide CA. SonaliSaripalli Madam,
for her valuable inputs & guidance in various stages of project analysis.

I am also thankful to SIBAR &Royal Future Consultant India Private Limited for giving me
an opportunity to undertake such a project for research.

Last but not the least; I would like to thank all those people who directly or indirectly helped
me in the successful completion of the project.

Aishwarya Gaikwad

4 
 
 EXECUTIVE SUMMARY

This project is basically about commodity market. This project explains various tools and
trends for analysis. This report is about understanding the data facts and technical indicators
of commodity market. Which will help to take decision that whether the investment in that
particular commodity might be fruitful or not.

This project explains the various technical reasons that affect the value of commodities. It
also indicates that how the rates of the commodities fall and rise due to technical reasons
when the fundamentals are stable. The main objective of this project is to provide
comprehensive introduction to the trends and technical affecting the area of commodities.

The main focus of the project is commodity market and so a commodity market can be
explained as “A commodity market is a market that trades in primary rather than
manufacturing products such as wheat, coffee, cocoa, and sugar. Hard commodities are
mixed such as gold and oil.” The early traces can be found in 1864, in the United States,
wheat, corn, cattle, and pigs were widely traded using standard instrument on the Chicago
Board of Trade (CBOT), the world’s oldest exchange. As in today the commodity market has
developed on international level and there are major 50 exchange board and 100 primary
commodity are crude oil, coffee, natural gas, gold, wheat, cotton, sugar, silver, copper. Out of
which my project focus on gold.

My project mainly focuses on trends and technical to be followed to make profitable

investment. The commodity market is very huge and vast and there are various factors on
which it react the main factors are fundamental analysis, technical analysis, and sentimental
analysis. When the fundamentals are stable at that time the market moves accordingly to the
technical analysis and trends. My project explains what are the technical indicators and trends
and how past prices and trends affect future market condition.

The technical analysis involves the study of commodity market price in an attempt to predict
the future price movements. Initially past prices are examined in order to identify recurring
trends or pattern in price movement and then more recent commodity prices are analysed in
order to identify emerging trends and pattern. The analysis helps to predict accurately future

5 
 
price movement for that particular commodity.

The project majorly explain the procedures followed for commodity trading by explaining
standard contract, margin and leverages, position trading, hedging tools and the project do
emphasise on technical factors like types of chart, candlestick formation, moving averages,
indicators and how all this indicators help in predicting the future trends to make an
profitable investment.
 

6 
 
 CONTENTS

PAGE
NUMBER
SR. NO TITLE

Chapter no 1 Introduction  

1.1 Introduction to report 1

1.2 Company profile 2

1.3 Research objective and limitation 4

1.4 Research methodology 5

Chapter 2 Conceptual Background

2.1 Literature review 7

2.2 Introduction to commodity market 9

2.3 Meaning and objective of commodity future 11

Chapter 3 Data presentation

3.1 Evolution of commodity markets 14

3.2 Basic procedures followed in commodity 15

trading

3.3 Types of analysis 21

3.4 Technical analysis in detail 28

3.6 Indicators 52

Chapter 4 Findings Conclusion and Recommendations 64

Chapter 5 Appendix 66

7 
 
 1.1INTRODUCTION TO THE REPORT

The Commodity market has become multi-trillion dollar market over the years. Commodity
trading is financial commitments indexed or linked in some capacity to changes in the value
of underlying assets. Investing in various types of assets is an interesting activity that attracts
people from all walks of life. Investors who are having that extra cash could invest it in
securities like shares or any other assets like gold, which comes under the commodity futures
market. Commodity futures are contracts to buy specific quantity of a particular commodity
at a future date.

The researcher has taken commodity market to study & analyze, as it is the emerging trend in
the market. The researcher has particularly taken Gold as the commodity to study the impact
of present gold price on future gold market & its trading mechanism.

The Aims and Objectives of this research are to have an in-depth knowledge of the
International commodity market and in this report entitled “A Study on Technical Analysis
and Procedures Followed For Commodity Trading with Special Reference to Gold”; the
researcher has tried level best to make it simple and understandable.

Secondary data such as reports, websites, articles, and an active interaction with employees
were use to get the necessary information and achieving aims and objectives of research.

The research deals with basics procedures of trading in commodity market and its technical
analysis to determine future price trends. Also statistics about the global gold market is given.
In the later part of the research evolution, current scenario and prospects prices of gold are
discussed and it also gives a brief idea how to predict the future trends on the bases of past
data and patterns. It also includes various indicators and its use to determine future prices.

8 
 
 1.2 COMPANY PROFILE

About the company:-

Royal Futures Consultants India Pvt ltd. is a company formed under the Indian Companies
Act 1956 and has been incorporated in the year 2012

Royal acts as support centre for Harvest International Consortium's Limited (Jakarta,
Indonesia), providing customer support, and back office and compliance services. It also
offers extensive education and training services to Indian clients to help them understand the
global market better.

Royal provides consultancy services to Indian institutional and retail customers. Individual
Indian traders, fund managers and institutional customers can now benefit from Royal’s
global expertise and innovative technology, combined with quality execution, low-cost
trading solutions and responsive customer support from its highly professional teams.

About the parent company:-

Royal acts as support care of Harvest Group. Now coming towards Harvest Group, it was
founded to provide the best possible Currency Trading, metal, indices and stock trading
experience for online trade. Harvest group is backed by large financial group of companies
with over US $16 billion in assets under management.

Harvest Group takes pride in its stringent management control as far as its business
infrastructure goes. Utilizing its subsidiary companies or strategic Alliances of Harvest
International Consortiums (HIC) in Hong Kong and Harvest Futures consultants India Pvt.
LTD (HFC) in India to provide paramount global financial advice network to our clients.

Harvest Group was established in 2003.Harvest Group has a worldwide operation network
reaching 12 countries and 40 regions Indonesia, India, Hong Kong, China, Vietnam, Brunei,

9 
 
Malaysia, Philippines, Singapore, Taiwan, Laos and Thailand employing more than 1300
staffs to serve the global demanding market in financial services.

HIC offer the latest range of trading technology, featuring the powerful MT4 (Meta Trading
4) station for individual traders and multi account platforms for asset managers, and PDA and
Smartphone solutions for trading on the move.

Operating principals:-

• We are bonded by our common vision, mission, values and operating principles.
• We operate with high ethical standards and in compliance with the law.
• We are extremely focused as our businesses are defined by markets.
• We focus on our processes which are designed to optimize global performance.
• We believe in complete Client Satisfaction and Zero Tolerance for Quality Service.
• We focus on our processes which are designed to optimize global performance.

Our mission:-

• Our Mission is to deliver best advisory services to all our Clients by using innovative
technology and ensure safety of customer's funds using comprehensive market
research tools and advanced educational programmes for best clientele service.

Our vision:-

• Our vision is to become the leading advisory services provided worldwide and offer a
wide variety of financial instruments, as well as comprehensive fund management
services.  

10 
 
 1.3RESEARCH OBJECTIVE

The objectives of the study are as follows:

• To study the commodity market.

• To study the procedures for trading in commodity market.
• To study and analyze the trends of commodity market.
• To predict the future price of commodities by using past trends and indicators.

The limitation of report:

• Internal information and process were confidential and not readily available.
• Time was a constraint.
• Even though the prices of commodity is dependent on some fundamental & technical
parameters & affected by various factors such as interest rates, foreign flows, policies,
etc. it is difficult to know the trend & the future prices of commodities exactly
because of these uncontrollable fact

11 
 
 1.4 RESEARCH METHODOLOGY

Research
Research is an integrated part of education. According to John Best research is
defined as “A systematic analysis and recording at controlled observation as that lead to
generalization and principles of theories resulting in product as control of many events that
are of consequences”.

Research methodology
The purpose of research methodology is to describe the research procedure. This
includes the research design, data methodology, period of study, and the tools used

Methodology of study

1. Sources of Data:
The two major sources of collecting data are:
1. Primary data
2. Secondary data

1. Primary Sources:
The primary data was collected specifically on project hand. One can obtain
information through dealers, salesmen, etc. The entire study was conducted in Royal
Future Consultant India Private Limited, which consisted of information on
understanding the level of awareness regarding the concepts & techniques of technical
analysis. Data was also collected through observation during the training period

2. Secondary Sources:
Secondary data is already collected by someone else. This information is relevant &
can be used for research purpose. The information was drawn from published
journals, company magazines, annual reports of the company, etc. Besides, data was
also collected from the Internet

12 
 
 2. Period of study
The period of study for the analysis is two months.

• Scope
This study concentrated on ‘the study on procedures followed for Commodity trading
at Royal Futures Consultants India Pvt. Ltd, Pune

13 
 
 2.1 LITRATURE REVIEW

Price volatility is the most pressing issue facing the producers of primary commodities. While
these producers are not exclusively in less developing countries (LDCs), the impact of
volatility specially on agricultural producers is much greater in less develop countries than it
is for those in developed market economies (Sapsford and Chen, 1998).

The traditional high volatility of international commodity prices can be attributed to several
demand and supply factors. However Pal and Wadhwa (2007) observed a distinguishing
feature of international agricultural trade is that only a limited number of exporting countries
dominate international trade. Even for a widely produced crop like rice, the share of the top
five exporters is more than 76 percent and for all cereals the share of the top five is almost 75
percent. The supply side scenario is further complicated because exports of some major
agricultural commodities are dominated by a few large-scale multinational “grain majors”
and export state trading enterprises (single-desk sellers).

According to Chakrabarti and Ghosh (2009) whenever producers as well as consumers face
price risk, conventional attempts to stabilize prices in the wake of price volatility are dealt
mainly with government funds and governmental intercessions. These involved measures like
buffer stocks, buffer funds, commodity agreements, or government intervention in
commodity markets.

However in the World Bank report (1999) revealed that internationally, there is little
evidence of the success of such schemes. Buffer funds have gone bankrupt, as evidenced in
Australia and Papua New Guinea. Buffer stocks have not proven effective, as can be seen by
the large accumulations under the United States of America and European Union farm
programmed in the late 1980s. International commodity agreements have lapsed, as in the
cases of coffee, cocoa, tin, and sugar. And government intervention has been costly, with
unintended consequences, thereby placing unnecessary pressure on the government
exchequer.

Ideally, commodity futures exchanges integrate the futures and cash prices, thereby leading to
overall efficient price formation. Because futures are traded on exchanges that are

14 
 
anonymous public auctions with prices displayed for all to see, the markets perform the
important function of price discovery. Around the world, many such prices in agricultural
commodities fixed in the Chicago Board of Trade (CBOT) are taken as the reference price for
trading. Incidentally, it may be observed that soybean oil futures contract at National Board
of Trade (NBOT) in Indore follows the soybean oil futures contract at the CBOT.

Various commodity exchanges around the world have emphasized their roles in price
discovery either at the international or at the local level. Such attempts have been well
documented for Dalian Commodity Exchange (DCE) in China, Bursa Commodity Exchange
in Malaysia which is often claimed to have discovered the prices of Malaysian palm oil, and
Tokyo Commodity Exchange (TOCOM) which provides a benchmark for price discovery in
Middle East Crude Oil

In the international domain in US and other Western countries, derivatives trading is allowed
in a range of commodities including live cattle, hogs, pork bellies, fluid milk, rubber, coffee,
wool and industrial metals and even in a number of non-commodities such as weather
derivative contracts, insurance contracts etc. providing the holder with large amounts of
capital subject upon the occurrence of some risky event. (Fernando N.A, 2004).

In this regard Kabra (Ministry of Consumer Affairs, Food & Public Distribution, 1993)
observed that while futures trading in a number of countries has over a period of time,
evolved various instruments such as commodity bonds and loans and range forward, these are
not being used in India, where the non-transferable specific delivery (NTSD) contracts,
transferable specific delivery (TSD) contracts and futures contracts are in vogue, primarily on
account of the relative narrowness of our commodity markets.

15 
 
 2.2 INTRODUCTION TO COMMODITY MARKET

Ever since the dawn of civilization commodities trading have become an integral part in the
lives of mankind. The very reason for this lies in the fact that commodities represent the
fundamental elements of utility for human beings. The term commodity refers to any
material, which can be bought and sold. Commodities in a market's context refer to any
movable property other than actionable claims, money and securities. Over the years
commodities markets have been experiencing tremendous progress, which is evident from the
fact that the trade in this segment is standing as the boon for the global economy today. The
promising nature of these markets has made them an attractive investment avenue for
investors. This paper attempts to answer questions such as: how did India pull it off in such a
short time since 2002? Is this progress sustainable and what are the obstacles that need urgent
attention if the market is to realize its full potential? Why are commodity derivatives
important and what could other emerging economies learn from the Indian mistakes and
Experience?

Any product that can be used for commerce or an article of commerce which is traded on an
authorized commodity exchange is known as commodity. The article should be movable of
value, something which is bought or sold and which is produced or used as the subject or
barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts
(Regulation) Act (FCRA), 1952 defines “goods” as “every kind of movable property other
than actionable claims, money and securities”.

In current situation, all goods and products of agricultural (including plantation), mineral and
fossil origin are allowed for commodity trading recognized under the FCRA. The national
commodity exchanges, recognized by the Central Government, permits commodities which
include precious (gold and silver) and non-ferrous metals, cereals and pulses, ginned and
unpinned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar, potatoes and
onions, coffee and tea, rubber and spices etc.

16 
 
Commodity Exchange: A commodity exchange is an association or a company or any other
body corporate organizing futures trading in commodities for which license has been granted
by regulating authority.

Commodity Futures: A Commodity futures is an agreement between two parties to buy or

sell a specified and standardized quantity of a commodity at a certain time in future at a price
agreed upon at the time of entering into the contract on the commodity futures exchange. The
need for a futures market arises mainly due to the hedging function that it can perform.
Commodity markets, like any other financial instrument, involve risk associated with
frequent price volatility. The loss due to price volatility can be attributed to the following
reasons:

1. Consumer Preferences: In the short-term, their influence on price volatility is small since
it is a slow process permitting manufacturers, dealers and wholesalers to adjust their
inventory in advance.

2. Changes in supply: They are abrupt and unpredictable bringing about wild fluctuations in
prices. This can especially noticed in agricultural commodities where the weather plays a
major role in affecting the fortunes of people involved in this industry. The futures market
has evolved to neutralize such risks through a mechanism; namely hedging

17 
 
 2.3 MEANING AND OBJECTIVE OF COMMODITY FUTURES

MEANING

An agreement to buy or sell a set amount of a commodity at a predetermined price and date.
Buyers use these to avoid the risks associated with the price fluctuations of the product or raw
material, while sellers try to lock in a price for their products. Like in all financial markets,
others use such contracts to gamble on price movements.

Binding contract to buy or sell a commodity at a fixed price, on or before a certain date.
Commodity futures are standardized in terms of the quantity, quality, and delivery time for
each commodity-except the price which is determined (at the time the contract is entered
into) according to the demand and supply situation. In practice, physical delivery of the
commodity rarely occurs because the delivery contracts are exchanged or closed out (traded
out) before their expiration date also called security futures.

OBJECTIVE AND ADVANTAGES OF COMMODITY FUTURE CONTRACT

• Trading on Lower Margin

As a trader, you need to deposit a margin with your broker which can be close to 5 to
10% of the total value of contract, which is much lower considering other asset
classes. Such a low margin allows you to take larger positions at a lesser capital.

• Hedging
Whenever the rupee becomes less valuable, you need more money to buy commodity
goods from different parts of the world. Especially during inflation, the prices of
commodity goods go up as other investors sell off their stocks and bonds to invest in
commodities. Therefore, you can be benefit from some commodities in your portfolio
that act as a potential hedge against risks.
Hedging with the objective of transferring risk related to the possession of physical
assets through any adverse moments in price. Liquidity and Price discovery to ensure
base minimum volume in trading of a commodity through market information and

18 
 
 demand supply factors that facilitates a regular and authentic price discovery
mechanism.
• Protection against Inflation
When the economy is dipping, money is worth less – inflation occurs. The prices for
commodities usually go up during high inflation; accordingly the price of raw
materials also sees an upward trend .Therefore, a few commodities in your portfolio
will help you benefit from this upswing.

• Diversified Investment Portfolio

An ideal asset allocation plan means having a diversified portfolio. Commodities are
an important component of having a diversified investment portfolio. If you are
already investing in stocks and bonds, it is suggested that you consider investing in
raw materials simultaneously. This way, whenever there is a stock market crash, you
are not putting all your eggs in a single basket.
Often, the values of commodities see a downfall just like stock market shares. They
react differently in various geo-political and economic scenarios. Diversification,
thus, is more likely to improve risk-adjusted returns and reduce volatility.

• Transparency in the Process

Trading in commodity futures is a transparent process. The course of action leads you
to fair price discovery which is controlled by large-scale participation. Such a huge
participation also reflects different perspectives and outlook of a wider section of
people who are dealing with that commodity.

• Profitable Returns
Commodities are riskier form of investments with huge swings in prices. Companies
either hit it right on a resource discovery or experience heavy losses. This opens up
opportunities for you to make profits in the commodity market provided you plan
your investments right.

• A Safe Refuge during Crisis

19 
 
 Often investors think about precious metals like silver, gold, and platinum; they offer
a clear protection during inflation and times of economic uncertainty. They are a good
source of investment even during tough times.

• Liquidity.
The involvement of speculators means that futures contracts are reasonably liquid.
However, how liquid depends on the actual contract being traded. Electronically
traded contracts, such as the e-minis tend to be the most liquid whereas the pit traded
commodities like corn, orange juice etc are not so readily available to the retail trader
and are more expensive to trade in terms of commission and spread.

• Ability to go short.
Futures contracts can be sold as easily as they are bought enabling a speculator to
profit from falling markets as well as rising ones. There is no uptick rule for example
like there is with stocks.

20 
 
 2.4 EVALUTION OF COMMODITY MARKETS

ORIGIN OF COMMODITY MARKETS:

The origin of derivatives can be traced back to the need of farmers to protect themselves
against the fluctuations in the price of their crops. From the time it is sown, to the time it is
ready to harvest, farmers would face uncertainty. Through use of simple derivative products
it was possible for the farmers to partially or fully transfer the price risks by locking-in asset
prices. These were simple contracts developed to meet the needs of the farmers & were
basically a means of reducing the risks.

In 1865, the CBOT went a step further & listed the first “exchange traded” derivatives
contract in the US & these were called “future contracts”. In 1919, Chicago Butter & Egg
Board, a spin-off of CBOT, was reorganized to allow futures trading. Its name was changed
to Chicago Mercantile Exchange (CME). The CBOT & CME remain the largest organized
futures exchanges, indeed the largest financial exchanges of any kind in the world today. In
1925, the first futures clearing house came into existence.

LARGEST COMMODITY DERIVATIVES EXCHANGES

Name of Exchange Country Trades No. of future

contracts traded

Dalian Commodity Exchange China Agriculture 834

Shanghai Futures Exchange China Non-prec. Metals 435

CME Group US Energy, metals, agri. 431

Zhengzhou Commodity Exchange China Agriculture 227

ICE futures Europe UK Energy 165

Multi Comm. Exchange of India India Agri. Met. Energy 161

London Metal Exchange UK Non-prec. Metals 106

21 
 
 2.5 BASICS AND PROCEDURES FOLLOWED IN COMMODITY
TRADING

Commodities markets, both historically and in modern times, have had tremendous economic
impact on nations and people. The impact of commodity markets throughout history is still
not fully known, but it has been suggested that rice futures may have been traded in China as
long ago as 6,000 years. Shortages on critical commodities have sparked wars throughout
history (such as in World War II, when Japan ventured into foreign lands to secure oil and
rubber), while oversupply can have a devastating impact on a region by devaluing the prices
of core commodities.

Energy commodities such as crude are closely watched by countries, corporations and
consumers alike. The average Western consumer can become significantly impacted by high
crude prices. Alternatively, oil-producing countries in the Middle East (that are largely
dependent on petrodollars as their source of income) can become adversely affected by low
crude prices. Unusual disruptions caused by weather or natural disasters can not only be an
impetus for price volatility, but can also cause regional food shortages. Read on to find out
about the role that various commodities play in the global economy and how investors can
turn economic events into opportunities.

The three categories of trading commodities include:

• Energy (including crude oil, heating oil, natural gas and gasoline)
• Metals (including gold, silver, platinum and copper)
• Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar)

Following are the terminology and procedures followed in commodity market.

Futures Trading

The concept of futures trading started from commodities futures trading. The basic idea
behind it essentially for a fair price discovery, which will reflect the actual demand and
supply of a particular commodity. Exchanges were set-up to facilitate the trade transaction
between sellers (producers) and buyers (consumers). If there are more producers (supply),

22 
 
prices w
will tend to fall, while more conssumers (dem
mand) will escalate
e priices. A thirdd group,
hered in to maintain thhe fair price discoveryy. The exchhange will regulate
speculaators are ush
the stanndardized co
ontracts as well as tradde regulatioons so that, no particulaar group shhall have
an unfaair advantage.

1. Standardize Coontracts

The objject that is being

b tradedd in futures markets aree contracts of an underrlying instruument or
commodity. It is beeing standaardized withh regards to quality, quaantity and delivery.
d Onnly price
is left fo
for the buyerrs and sellers to agree upon. One contract is known
k as 1 lot, 2 contrracts are
2 lots annd so on.

Only coommodities contracts have

h deliverry and contrract expiry. If you hav
ve a sell conntract of,
say, oleein, you hav
ve to deliver the oleinn as stipulaated (amounnt & qualityy) to the apppointed
warehouuse. And vice
v versa, if
i you havee a buy conntract of oleein, you havve to take delivery
from thhe appointeed warehouuse upon coontract exppiry. Financcial contraccts are cashh settled
(liquidaated) or are being rolledd over with swap chargges.

2. Marggin and levverage

n
Margin
The reaal meaning of
o margin iss actually goood faith deeposit

Initial M
Margin

23 
 
The am
mount of mon
ney required to open a trading acccount.

Requirred Margin
The am
mount of mooney requirred to trade one particuular instrum
ment. For example, GB
BPUSD,
requiredd margin iss US$1000.. It means that
t n US$1000 in your
you neeed to havee more than
trading account to initiate a traade.

Call Margin
If you hhave a losinng position with a floatting loss, thhen your brooker might issue a calll margin
on yourr account. A call marrgin is an amount
a of money requuired to maaintain youur losing
positionn. If the caall margin is
i not fulfillled, the loosing positio
on might suffer
s an auutomatic
liquidattion.

Leveraage
The pheenomenon of
o moving a larger objeect with lessser effort wiith the use of
o fulcrum is
i
known as leveragee. Trading futures alloows the usee of smallerr amount of money too trade a
bigger aamount. Hoow so?

Leveragge of 100:1.. The actuall amount off money per forex contrract is US$1100,000.00.. But, by
using leeverage, you
u need onlyy US1, 000.000 margin to trade 1 foorex contracct

Two waay opportu

unities
The bellow picturee illustrates the beauty
y of futuress trading, itts 2 way oppportunitiess. On an
uptrendd, picture on
n left, we enter
e the market
m with a buy new
w. Later the price wentt up, we
liquidatte with a seell order. The
T differen
nce betweenn the buy price
p and thhe sell pricce is our
profit. T
This is very normal; wee need to buuy before we
w can sell.
24 
 
On a doowntrend, picture
p on the
t right, illlustrates ann opportunitty when priice is declinning. As
long as we have ennough margins, we can enter the market
m with a sell new position.
p Ass soon
as the pprice shows a reversal, of going up
p, we liquiddate with a buy
b to offseet our positiion. The
differennce will be our
o profit. This
T lies thee uniqueness of futuress trading, wee can sell fiirst, then
buy lateer to offset.

3. Posittion Tradin
ng

Imaginee that there is a bus (thhe price) in the

t market. The driver is blind. Thhe driver wiill move
accordinng the vollume of sccreams from
m the passsengers. In an uptrennd, there arre more
passenggers with buuy tickets, they
t need too exchangee their buy tickets
t withh a sell tickeet to get
off the bus,
b to get out
o of the market.
m So, the
t passenggers with bu
uy tickets will scream “UP!”
“ as
loud ass possible, as
a many tim
mes as possible, until the driver (price) moove upwardds. Upon
reaching the desireed higher prrice area, th xchange for sell tickets and the
he buy tickeets were ex
passenggers are off the bus, andd out of the market.

It’s direectly opposiite for sell tickets.

t Passengers neeed to exchannge for a buuy ticket at a lower
price arrea, so they
y’ll scream “DOWN!”
“ When we do
d not hold any positio
on or tickett, we are
not affeected where the blind ddriver goes.

4. Hedgging Tool
A farm
mer producinng sugarcanne wants to
o sell his prroduct at th
he best posssible price, while a
sugar faactory wantts to buy suugarcane att the lowestt possible price.
p Both these exam
mples are

25 
 
physical trades. While waiting for the sugarcane to harvest, both the farmer and factory are
prone to price changes. In order to hedge, safeguard, against drastic price changes, the farmer
will take a buy position in futures because he sells physical goods and the factory will take a
sell position in the futures contract because the factory buys the physical goods.

For investors in shares, they can hedge their investments in Stock Index. When prices of
shares take a dip, the investor will suffer losses if he/she decides to sell. But by taking a sell
position in Stock Index, the investor is hedging his investment. How? Even though the share
prices has dropped, which will also move the Stock Index down, the investor still owns the
shares, although with lower value. When prices start to recover on the shares, the Stock Index
will also increase. Thereby allowing the investor to liquidate his sell position and make some
profits at a lower price before the Stock Index follow the rise of share prices. In effect, the
loss in value of shares has been realized by the profits made in Stock Index which allows the
investor to maintain his shares and enjoy his profits or purchase more shares at the lower
price.

Importers and exporters also utilizes futures trading as a hedging tool. The global trade is
usually done in US$ (United States Dollars). An importer may purchase US dollars when the
price is low, so that, when he needs to import products when the dollar goes up, he will not
suffer losses.

5. Segregated Account
To maintain the integrity and security of investors’ funds, the regulation or law stipulates that
investors’ funds are deposited into segregated accounts. These accounts are constantly
monitored by BBJ (exchange), KBI (clearing house) and Bappebti (regulator) to avoid any
abuse or other criminal acts.

Segregated account works like an omnibus account. The bus is under the company’s name,
but the seat in the bus is registered to clients or account holders.

26 
 
Openin
ng Accountt

27 
 
 2.5 TYPE
ES OF AN
NALYSIS
S

Commoodity markeet has three types

t of anaalysis and thhey are as follows.
f
• Technical Analysis
A
• Fundamenttal Analysiss
• Sentiment Analysis
A

Techniccal analysis is the studdy of currenncy price moovement on

n the charts while funddamental
analysiss takes a lo w the counttry’s economy is doinng. Market sentiment analysis
ook at how
determiines whetheer the markket is bullissh or bearish on the current
c or future
f funddamental
outlookk. Fundamenntal factors shape sentiiment, whilee technical analysis
a hellps us visuaalize that
sentimeent and applly a framew
work to creatte our trade plans.

Those tthree work hand-in-haand-in-hand

d to help yoou come up
p with good
d commodiity trade
ideas. A
All the histoorical price action and economic figures andd the markett sentiment is to be
kept in mind to make a good profitable trade. theree has alway
ys been a coonstant debaate as to
which aanalysis is better,
b but thhe truth is, one need too know all three
t types of
o analysis to make
the tradde profitablee in commoddity markett

.
These tthree type of
o analysis are like thrree-legged stool if anyy one of thee legs is weak,
w the
analysiss is weak thhe trade willl go in loss. And so a trader
t must keep three types of analysis in
mind beefore makinng the trade. In other words
w a goodd trade is a trade which
h includes teechnical
analysiss and trennds and suupporting fu ould be acccording to market
undamentalls and sho
sentimeents.

28 
 
Now let’s discuss the three analysis in detail.

Fundamental Analysis

It is a subject in schools. But it’s known as Economics. The subject that dwells in supply and
demand, why the interest rate goes up or down and why do people trade. In the real world and
in the world of commodities, Mother Nature comes into play. Weather can determine whether
the harvest will be good or failed. Weather can also determine the movement of trade, for
example; when there is stormy season, the price of fish will definitely go up. Why? It’s too
dangerous for fishing boats to go to sea.

Businesses that are public listed have to declare their balance sheet to the public through
their Annual General Meeting. Also periodically, they have to publish the statements of
accounts. These will help the investors to analyses their potential earnings. With the numbers
of potential earnings, the company may cause their share price to increase. There are a
number of analysts that have been employed by banks, insurance companies and investment
houses whose sole job is to analyses data of potential investable companies. These people
will look into the companies’ management, balance sheet and the industry growth. It’s a lot
of work and results will only show after weeks or even months. Real good returns usually
come after a few years.

Governments do not show the public their statements of accounts. So, how do we analyses
currencies? Every country has a central banker, a finance minister, a trade minister or
sometimes a statistics gathering body. These are the sources of information that will be used
to analyze fundamentally. Every month, statistics like GDP (Gross Domestic Product),
Inflation Rate, NFP (Non-Farm Payroll); are released. These statistics may cause the currency
market to fluctuate. Sometimes, an event like, the resigning of a finance minister, may cause
the currency to drop. Especially when the minister is considered to be good, globally.

Sentimental Analysis

As discussed earlier, that price action should theoretically reflect all available market
information. Unfortunately for commodity market traders, it isn’t that simple. The
29 
 
commodity markets do not simply reflect all of the information out there because traders will
all just act the same way. Of course, that isn’t how things work.

This is why sentiment analysis is important. Each trader has his or her own opinion of why
the market is acting the way it does. The market is complex network made up of individuals
which makes the market very volatile and sentimental.

The market basically represents and reacts on the sentiments of traders. Each trader’s
thoughts and opinions, which are expressed through whatever position they take, helps form
the overall sentiment of the market regardless of what information is out there.

The problem is that as retail traders, no matter how strongly one trader feels about a certain
trade, trader can’t move the commodity markets in his favour. Even if one trader truly believe
that the gold is going to go up, but if the market sentiments is bearish on it, then the trade will
go in loss because the overall market sentiments are in opposite direction of the trade. Being
able to gauge market sentiment aka sentiment analysis can be an important tool to become a
good commodity market trader.

Technical Analysis

Technical analysis is the easiest form of financial analysis. As long as you can read, write and
do simple mathematics, you can do technical analysis. There are thousands of websites that
provide information on technical analysis, some even provide free training!

Technical analysis is a method of evaluating commodities by analyzing statistics generated

by market activity, such as past prices and volume. Technical analysts do not attempt to
measure a security's intrinsic value, but instead use charts and other tools to identify patterns
that can suggest future activity.

A fundamental principle of technical analysis is that a market's price reflects all relevant
information, so their analysis looks at the history of a security's trading pattern rather than
external drivers such as economic, fundamental and news events. Therefore, price action
30 
 
tends to repeat itself due to investors collectively tending toward patterned behavior – hence
technical analysis focuses on identifiable trends and conditions

"Technical analysis is the study of market action, primarily through the use of charts, for the
purpose of forecasting future price trends.". In its purest form, technical analysis considers
only the actual price behavior of the market or instrument, based on the premise that price
reflects all relevant factors before an investor becomes aware of them through other channels.

Technical analysis is widely used among traders and financial professionals, and some
studies say its use is more widespread than is "fundamental" analysis in the foreign exchange
market. Academics such as Eugene Fama say the evidence for technical analysis is sparse and
is refuted by the efficient market hypothesis, yet some Federal Reserve and academic studies
include evidence that supports technical analysis. MIT finance professor Andrew Lo argues
that "several academic studies suggest that…technical analysis may well be an effective
means for extracting useful information from market prices."Burton Malkiel argues,
"Technical analysis is anathema to the academic world."

The basic foundation of technical analysis is known as Dow Theory. This theory has been
casted in stone by Charles H. Dow from 1900 to 1902. Dow believed that the stock market as
a whole was a reliable measure of overall business conditions within the economy and that by
analyzing the overall market; one could accurately gauge those conditions and identify the
direction of major market trends and the likely direction of individual stocks.

There 6 principles of Dow Theory;

1. The Market discounts everything. The movement of prices does not depend on
information; past, present or even the future. Also known as, Random Walk Theory.

2. Prices move in 3 trends, they are; Up trend, Down trend, or Sideways (ranging).

3. Trends have 3 phases, they are; Initiation, Accumulation, and Excess.

4. Market indexes must confirm each other. Industrial Index and Transportation Index
must confirm each other.
31 
 
5. Volume must confirm trend. When the index goes up, the volume of transaction must
also go up.

6. Trend remains in effect until clear reversal occurs. The trend will continue until there
is a very clear or strong signal that proves otherwise.

This are the 6 principal of Dow Theory now before going in deep to the technical analysis
lets have some information about the platform on which trade can be made and technical
analysis can be observed in Royal Future Consultant India Pvt. Ltd. We use to trade on Meta
Trader 4 platform

Meta Trader Platform

MetaTrader 4, also known as MT4, is an electronic trading platform widely used by online
retail foreign exchange speculative traders. It was developed by MetaQuotes Software and
released in 2005. The software is licensed to foreign exchange brokers who provide the
software to their clients. The software consists of both a client and server component. The
server component is run by the broker and the client software is provided to the broker’s
customers, who use it to see live streaming prices and charts, to place orders, and to manage
their accounts.

The client is a Microsoft Windows-based application that became popular mainly due to the
ability for end users to write their own trading scripts and robots that could automate trading.
In 2010 MetaQuotes released a successor, MetaTrader 5, however uptake was slow and as of
April 2013 most brokers still used MT4. While there is no official MetaTrader 4 version
available for Mac OS, some brokers provide their own custom developed MT4 variants for
Mac OS

Functionality

32 
 
The clieent terminaal includes a built-in ed
ditor and coompiler witth access too a user conntributed
free libbrary of sooftware, articles and help.
h The software
s uttilizes a prroprietary sscripting
languagge, MQL4,[3]
[
which ennables tradeers to deveelop Expertt Advisors, custom inndicators
and scriipts. MetaT
Trader's popuularity largeely stems frrom its suppport of algorrithmic tradding.
MT4 is designed too be used as
a a standaloone system with the brroker manuaally managiing their
positionn and this is
i a commoon configurration used by brokerss. However a number of third
party ddevelopers have writteen softwaree bridges ennabling inteegration with
w other ffinancial
[5]
trading systems for
f automaatic hedging of posittions. In late 20122 and earlyy 2013,
MetaQuuotes Softw
ware began to work tow
wards remooving third--party plugiins for its software
s
[6]
from thhe market, su
uing and waarning deveelopers and brokers.
b
Componnents

The com
mplete MetaaTrader 4 package inclludes the following com
mponents:

• MetaTraderr 4 Client Terminal

T - the
t client paart. Provideed free by brokerages
b ffor real-
time onlinee trading and
a as Dem
mo (practicee trading) accounts.
a T
This provides trade
operations, charts and techniccal analysiis in real time. Th
he internaal C-like
programming languagge allows users
u to proogram tradding strateggies, indicattors and

33 
 
 signals. 50 basic indicators are included, each of which can be further customized.
The software runs on Windows 98/2000/XP/Vista/7. Some users have reported
success using Wine on Linux for the client terminal and on Mac using Wine Bottler.

• MetaTrader 4 Mobile - controls a trading account via mobile devices such as mobile
phones or PDAs. Runs on Windows Pocket PC 2002/Mobile 2003. Newly released
mobile versions also run on the iPhone, iPad, and Android devices.

• MetaTrader 4 Server - the core of the system, the server part. Designed to handle user
requests to perform trade operations, display and execution of warrants. Also, sends
price quotes and news broadcasts, records and maintains archives. Works as a service.
Does not have a separate interface.

• MetaTrader 4 Administrator - is designed to remotely manage the server settings.

• MetaTrader 4 Manager - designed to handle trade inquiries and manage customer

accounts.

• MetaTrader 4 Data Center - a specialized proxy server and can be an intermediary

between the server and client terminals. It reduces the price quote sending load on the
main server.

34 
 
 TECH
HNICAL ANALYS
A SIS IN DE
ETAIL

As disccussed abovve Techniccal analysiss is about observing past pricess and patteerns and
predictiing the futuure trends.  Technical analysis
a is all about, If
I a price level
l held as
a a key
supportt or resistannce in the past,
p traderrs will keepp an eye ouut for it an
nd base theiir trades
around that historrical price level. Tech
hnical analyysts look for
f similar patterns thhat have
formed in the past,, and will foorm trade iddeas believiing that pricce will act thhe same waay that it
did befoore.

Techniccal analysts use charts because theey are the easiest

e way to visualizee historical data.  As
more annd more co
ommodity trraders look for certain price levells and chartt patterns, thhe more
likely thhat these patterns willl manifest themselves
t in the mark
kets. And so
s chart patttern are
widely used in tech
hnical analyysis. now letts have a look on typess of charts inn detail.

There are
a three typ modity markets and theyy are as follows
pes of chartss widely useed in comm

1. Line chart
2. Bar chart
3. Candlestickk chart

i widely ussed in worldd because it is more effficient and clear

Candlesstick chart is c then otther
charts. T
The explanaation of chaarts is as folllows:-

35 
 
1. Line chart

A simplle line chartt draws a linne from onee closing priice to the neext closing price. Whenn strung
togetherr with a linee, we can seee the generral price moovement of a currency pair
p over a period
p
of time.. The follow
wing is an exxample of line chart.

2. Bar cchart
A bar cchart is a litttle more coomplex. It shows
s the opening
o andd closing prrices, as weell as the
highs annd lows. Thhe bottom of
o the verticcal bar indiccates the low
west traded
d price for thhat time
period, while the top of thee bar indicaates the higghest price paid. Thee vertical bar itself
indicatees the curren
ncy pair’s trading
t rang
ge as a whole. The horizontal hashh on the lefft side of
the bar is the openiing price, annd the rightt-side horizoontal hash iss the closingg price

36 
 
Bar chaarts are also called “OH
HLC” chartss, because thhey indicatee the Open, the High, the Low,
and the Close for thhat particular currency
y. Here’s an example off a price barr:

Open: T
The little ho
orizontal linne on the lefft is the openning price
High: T
The top of thhe vertical line defines the highestt price of thee time perio
od
Low: The bottom of
o the verticcal line defin
nes the low
west price off the time peeriod
Close: T
The little hoorizontal linne on the rigght is the cloosing price

dlestick chaart
3. Cand

• Hisstory

The Jappanese begaan using techhnical analyysis to tradee rice in the 17th centuury. While thhis early
version of techniccal analysis was differrent from thhe US verssion initiateed by Charlles Dow
around 1900, many
y of the guidding princip
ples were veery similar:
• The "what"" (price actioon) is more important than
t the "why".
• All known informationn is reflected in the pricce.
• Buyers andd sellers movve markets based on exxpectations and emotio
ons
• Markets fluuctuate.
• The actual price
p may not
n reflect th
he underlyinng value.

According to Stevee Nixon, caandlestick ch

harting firstt appeared sometime
s a
after 1850. Much
M of
the creddit for canddlestick devvelopment and
a chartinng goes to a legendaryy rice traderr named
Hommaa from the town
t of Sakkata. It is lik
kely that hiss original iddeas were modified
m andd refined
over maany years of
o trading evventually reesulting in thhe system of
o candlestick chartingg that we
use todaay.

37 
 
• Form
mation

In orderr to create a candlesticck chart, yo

ou must havve a data sett that contaiins open, hiigh, low
and close values foor each timee period youu want to diisplay. The hollow or filled
f portioon of the
candlesstick is calleed "the bodyy" (also refeerred to as "the
" real boddy"). The loong thin linees above
and beloow the bodyy represent the high/low
w range andd are calledd "shadows" (also referrred to as
"wicks"" and "tails""). The highh is markedd by the topp of the uppper shadow and the low
w by the
bottom of the low
wer shadow
w. If the sto
ock closes higher thann its openinng price, a hollow
candlesstick is draw
wn with the bottom of the body reepresenting the openinng price andd the top
of the bbody representing the closing
c pricce. If the stoock closes lower
l than its opening price, a
filled caandlestick is
i drawn with
w the top of the boddy representting the opeening price and the
bottom of the bodyy representinng the closiing price.

Comparred to tradiitional bar charts,

c man
ny traders cconsider can
ndlestick chharts more visually
appealinng and easiier to interppret. Each candlestickk provides an
a easy-to-ddecipher piicture of
price acction. Immeediately a trrader can coompare the relationshiip between the open annd close
as well as the highh and low. The
T relation
nship betweeen the openn and closee is considerred vital
informaation and foorms the esssence of caandlesticks. Hollow caandlesticks, where the close is
greater than the op
pen, indicatte buying pressure.
p Filled candlesticks, wheere the closee is less
than thee open, indicate sellingg pressure.

38 
 
• Basiic Candlesttick pattern
n and theree meaning

Every ccandlestick formed

f has some meanning and tecchnically it indicate
i thee future trennds.

1. Longg versus Sh
hort Bodies

Generallly speaking
g, the longer the body is,
i the moree intense thee buying or selling presssure.
Conversely, short candlesticks
c s indicate little price movement
m annd representt consolidattion.

• Long whitte candlestticks show

w strong buying
b pressure. Thee longer thhe white
candlestick
k is, the further the close
c is aboove the opeen. This in
ndicates thaat prices
advanced significantly
s y from open
n to close and buyers were aggrressive. Whhile long
white cand
dlesticks aree generally bullish, muuch dependds on their position
p wiithin the
broader tecchnical pictuure. After exxtended decclines, long white canddlesticks cann mark a
potential tuurning poinnt or supporrt level. If buying getts too aggressive afterr a long
advance, it can lead to excessive bullishness.
b

39 
 
 • Long blacck candlestticks show
w strong selling
s presssure. Thee longer thhe black
candlestick
k is, the furrther the close is below the opeen. This in
ndicates thaat prices
declined siignificantlyy from the open and sellers weere aggresssive. After a long
advance, a long blackk candlesticck can foresshadow a tuurning poin
nt or mark a future
resistance level.
l Afterr a long deccline a longg black canndlestick cann indicate panic
p or
capitulationn.

• Short bodiies imply very

v little buying or--selling acttivity. Bullss mean buyyers and
bears meann sellers.

• Live examp
ple

The aboove is an reeal example taken from

m my HIC demo
d accou
unt created during
d interrnship in
o 6th of maarch 2015 thhere was sttrong long bear
this piccture we cann see that on b candlee formed
a then on 18th march
and so ffurther till 6 days a beaar trend wass observed and h 2015 a stroong long
bull canndle was forrmed and thhat was the indication of
o trend reveersal and from that canndlestick
till 26th march 20155 there was a bull markket observedd.

2. Mystterious Sha
adows

• The upper and

a lower shadows
s on Japanese candlesticks provide im
mportant cluees about
the trading session. Uppper shadow
ws signify thhe session high.
h Lowerr shadows siignify

40 
 
 the session low.
• Candlestickks with longg shadows show
s that trrading actioon occurredd well past the
t open
and close. Japanese
J caandlesticks with short shadows
s indicate that most of thee trading
action was confined neear the openn and close.

Long S
Shadows

• If a Japanese candlesstick has a long uppeer shadow and

a short lower
l shad
dow, this
means that buyers flexxed their muscles
m andd bid prices higher, butt for one reeason or
another, selllers came in o end the seession back near its
i and drovve prices baack down to
open price.

• If a Japanese candlesstick has a long lowerr shadow and

a short upper
u shad
dow, this
means thatt sellers flasshed their washboard
w abs and fo
orced price lower, but for one
reason or another,
a buyyers came in
i and drovve prices baack up to ennd the sessiion back
near its opeen price.

3. Spinn
ning Tops

Japanesse candlesticcks with a long

l upper shadow,
s lonng lower shaadow and sm
mall real boodies are
called sspinning topps. The patteern indicatees the indeciision between the buyeers and selleers.

41 
 
                                                         

The sm
mall real bod
dy (whether hollow or filled)
f show
ws little mov
vement from
m open to close, and
the shaddows indicate that botth buyers and
a sellers were
w fightinng but nobody could gain
g the
upper hhand.

Even thhough the session

s opeened and cllosed with little chang
ge, prices moved
m signiificantly
higher aand lower in the meanntime. Neithher buyers nor
n sellers could
c gain the
t upper haand, and
the resuult was a staandoff.

• ms during an uptrendd, this usuaally means there aren’t many

If a spinniing top form
buyers left and a possible reversall in direction could occcur.
• If a spinninng top form
ms during a downtrennd, this usually means there arenn’t many
sellers left and
a a possibble reversall in directionn could occcur.

Live Example

In this aabove exam

mple we can see that theere was a beear market from
f 27th may
m 2015 tilll 2nd
June 20005 on 3rd Juune 2015 thhere was a foormation off spinning to
op that meaans all the seellers

42 
 
were exxhausted andd were not able
a to dropp price beyoond 124.12 USD
U and th
hen buyers came
c in
positionn and there was
w a strong bull trend t 19th Junee 2015
d observed till

ubozu
4. Maru

Maruboozu means there are no shadow

ws from the bodies. Depending on whetther the
candlesstick’s body
y is filled or hollow, thhe high andd low are thhe same as it’s open oor close.
Check oout the two types of Marubozus in
n the picturee below.

A Whitte Maruboozu containss a long whhite body with

w no shad
dows. The open pricee equals
the low
w price and
d the close price
p equa
als the high
h price. Thiis is a very bullish canndle as it
shows tthat buyers were in coontrol the entire
e sessioon. It usually becomess the first part
p of a
bullish continuation or a bullissh reversal pattern.
p

A Black
k Marubozzu contains a long blacck body withh no shadow
ws. The open equals tthe high
and thee close equaals the low. This is a very
v bearishh candle as it shows thaat sellers coontrolled
the pricce action thee entire sesssion. It usuaally implies bearish con
ntinuation or bearish reeversal.

Live exxample

As we ccan see in the

t below example
e there is a form
mation of marubozu
m onn 21st May 2015
2 the
candlesstick openinng was 1291.76 USD annd the samee was the veery high of that
t candlesstick and
the clossing and thhe very low
w was also same
s at 12664.06 USD
D and so it was
w a veryy bearish
maruboozu candlesttick and so it was the indication
i thhat prices arre going to fall for furtther few
days annd as we can
n see there was
w a bearissh trend for 5 days.

43 
 
5. Doji

Doji caandlesticks have

h the same open and close prrice or at leeast their bo
odies are exxtremely
short. A doji should have a veery small boody that apppears as a thiin line.

Doji caandles suggeest indecisioon or a struuggle for turrf positioninng between buyers andd sellers.
Prices move
m abovee and below
w the open price
p duringg the session
n, but closee at or very near the
open prrice. Neitherr buyers noor sellers weere able to gain
g controll and the result was esssentially
a draw.

There aare four speccial types of

o Doji canddlesticks. Thhe length off the upper and lower shadows
s
can varyy and the reesulting canndlestick loo
oks like a crross, inverteed cross or plus
p sign. The
T word
“Doji” refers
r to both the singuular and pluural form.

When a Doji formss on chart, special

s attenntion shouldd be paid to the precediing candlestticks.

44 
 
If a D
Doji forms after a seeries of caandlesticks with longg hollow bodies
b (likee White
Maruboozus), the Doji
D signalss that the buyers
b are becoming exhausted and weakenning. In
order foor price to continue
c rissing, more buyers
b are needed butt there aren’t anymore! Sellers
are lickking their chhops and aree looking to come in annd drive the price back down.

If a D
Doji forms after a series
s of candlesticks
c s with lon
ng filled bodies
b (likee Black
Marub
bozus), the Doji signalls that selleers are becooming exhaausted and weak. In order
o for
price too continue falling,
f morre sellers arre needed bbut sellers are
a all tappped out! Buuyers are
foamingg in the mouuth for a chhance to get in cheap.

While the
t decline is sputtering due to lacck of new sellers,
s furth
her buying strength is required
r
to conffirm any reversal. Loook for a white canddlestick to close abovve the lonng black
candlesstick’s open.

45 
 
In the nnext followin
ng sections, we will takke a look att specific Jaapanese canddlestick patttern and
what thhey are tellinng us. Hopeefully, by thhe end of thhis lesson on
o candlesticks, you wiill know
how to recognize different
d typpes of comm
modity canndlestick pattterns and make
m soundd trading
decisionns based on
n them.

• Singlle Candlesttick Pattern

ns

There are
a the four basic
b singlee Japanese candlestick
c patterns:

1. Ham
mmer and Hanging
H Maan

The haammer and hanging man

m look exactly alikke but hav
ve totally different
d m
meanings
dependiing on pastt price action. Both have
h cute liittle bodies (black or white), lonng lower
shadow
ws, and shortt or absent upper
u shadoows.

46 
 
Hammer

The hammer is a bullish reversal pattern that forms during a downtrend. It is named because
the market is hammering out a bottom. When price is falling, hammers signal that the bottom
is near and price will start rising again. The long lower shadow indicates that sellers pushed
prices lower, but buyers were able to overcome this selling pressure and closed near the open.

Just because a hammer form in a downtrend doesn’t give assurance of bear market more
bullish confirmation is needed for downwards trend. A typical example of confirmation
would be to wait for a white candlestick to close above the open to the right side of the
hammer.

Recognition Criteria:

• The long shadow is about two or three times of the real body.
• Little or no upper shadow.
• The real body is at the upper end of the trading range.
• The colour of the real body is not important.

Hanging man

The hanging man is a bearish reversal pattern that can also mark a top or strong resistance
level. When price is rising, the formation of a hanging man indicates that sellers are
beginning to outnumber buyers.

The long lower shadow shows that sellers pushed prices lower during the session. Buyers
were able to push the price back up some but only near the open.

Recognition Criteria:

• A long lower shadow which is about two or three times of the real body.
• Little or no upper shadow.
• The real body is at the upper end of the trading range.
• The colour of the body is not important, though a black body is more bearish than a
white body.

47 
 
2. Inverrted Hamm
mer and Sh
hooting Starr

The invverted hamm

mer and shoooting star also
a look ideentical. Thee only differrence betweeen them
is whethher you’re in
i a downtreend or uptreend. Both candlesticks have petitee little bodiees (filled
or holloow), long uppper shadow
ws and smalll or absent lower shadoows.

Inverteed Hammerr

The invverted ham

mmer occurs when priice has beeen falling suggests th
he possibiliity of a
reversall. Its long uppper shadow
w shows thaat buyers triied to bid thhe price highher.

Howeveer, sellers saw what the buyers weere doing, said

s “Oh heeck no!” and
d attemptedd to push
the pricce back dow
wn.

48 
 
Since thhe sellers weren’t
w ablle to close the price any
a lower, this is a goood indicattion that
everyboody who waants to sell has already
y sold. Andd if there arre no more sellers, thaat means
buyers will
w come in
n position

Shootin
ng star

The shoooting star is

i a bearish reversal paattern that loooks identiccal to the in
nverted ham
mmer but
occurs w
when price has been riising. Its shaape indicatees that the price
p openedd at its low, rallied,
but pullled back to the bottom.

This meeans that buuyers attem

mpted to pussh the price up, but sellers came inn and overppowered
them. This
T is a definite bearissh sign sincce there aree no more buyers
b left because
b theey’ve all
been muurdered

Live exxample

• Dual Candlesticck Patternss.

1. Enggulfing Can
ndles

49 
 
Bullish
h engulfing pattern

The bulllish engulffing pattern is a two caandlestick pattern

p that signals a sttrong up moove may
ming. It happens when a bearish candle is im
be com mmediatelyy followed by a largerr bullish
candle.

This seecond candlle “engulfs”” the bearissh candle. This

T means buyers aree trying to ccome in
market and that thhere could be a strongg up move after a reccent downtrrend or a period of
consoliddation.

Live exxample

50 
 
Bearish
h engulfingg pattern

The beaarish engulffing patternn is the opposite of thee bullish paattern. This type of canndlestick
pattern occurs whhen the bulllish candle is immediiately follow
wed by a bearish
b canndle that
complettely “engullfs” it. Thiss means thaat sellers ovverpoweredd the buyerss and that a strong
move ddown could happen
h . 

2. Tweeezers Botto
oms and Toops

The tw
weezers are dual candllestick reveersal patternns. This tyype of cand
dlestick patttern are
usually be spotted after an exttended uptreend or downntrend, indicating that a reversal will
w soon
occur.

The moost effectivee Tweezers have

h the folllowing chaaracteristics:

• The first caandlestick is the same as the overrall trend. If price is moving
m up, then the
first candlee should be bullish.
b
• The second
d candlesticck is opposiite the overrall trend. Iff price is moving
m up, then the
second candle should bbe bearish.
• ws of the caandlesticks should
The shadow s be off equal leng
gth. Tweezeer Tops shouuld have
the same hiighs, while Tweezer Bo
ottoms shouuld have thee same lowss.

51 
 
• Triplle Candlesttick Pattern
ns

1. Eveening and Morning

M Sttars

The m
morning starr and the evvening starr are triple candlestick
c patterns thhat you cann usually
find aat the end of a trend. They
T are revversal patteerns that cann be recogn
nized througgh three
characcteristics. We’ll
W use thhe Evening Star
S Patternn on the righht as an exam
mple of:

• The first candlestick

c is a bullish candle, whhich is part of
o a recent uptrend.
u

52 
 
 • The secon
nd candle has
h a small body,
b indicating that thhere could be
b some inddecision
in the marrket. This caandle can be either bullish or bearrish.
• The third candlestickk acts as a confirmation
c n that a revversal is in place,
p as thee candle
yond the miidpoint of thhe first canddle.
closes bey

2. Threee White So
oldiers and
d Black Croows

Three w
white soldieer’s pattern
n

The thrree white soldier’s pattern

p is formed
f wheen three lo
ong bullishh candles follow
f a
downtreend, signalling a reveersal has occurred. Thhis type off triple can
ndlestick paattern is
consideered as one of the moost potent inn-yo-face bullish
b signaals, especiaally when itt occurs
after ann extended downtrend
d a a short period
and p of coonsolidationn.

The firsst of the th

hree soldierss is called the
t reversall candle. It either endss the downntrend or
implies that the perriod of conssolidation thhat followedd the downttrend is over.

For thee pattern too be considdered valid, the secondd candlesticck should be
b bigger than
t the
previouus candle’s body. Alsoo, the seconnd candlestiick should close near its high, leeaving a
small orr non-existeent upper wick.
w

53 
 
For the three white soldier’s pattern to be
b completeed, the last candlestickk should bee at least
the sam
me size as the second caandle and haave a small or no shado
ow.

Three B
Black Crow
ws

o the three white soldiers. It is

The three black croows candlesstick patternn is just thee opposite of
formed when threee bearish canndles follow
w a strong uptrend,
u inddicating thatt a reversal is in the
works.

The seccond candlee’s body shoould be biggger than the first cand
dle and shouuld close att or very
near itss low. Finaally, the thiird candle should
s be the
t same size or largeer than thee second
candle’s body withh a very shoort or no low
wer shadow..

2. Threee Inside Up
p and Dow
wn

54 
 
Three IInside up Candlestick
C k pattern

The thrree inside up

u candlesttick formatiion is a treend-reversaal pattern th
hat is foundd at the
bottom of a downtrrend. This triple
t candleestick patterrn indicates that the dow
wntrend is possibly
p
over annd that a neew uptrend has startedd. For a valid three insside up canndlestick forrmation,
look forr these prop
perties:

• The first candle

c shouuld be foun
nd at the botttom of a downtrend
d a is charaacterized
and
by a long bearish canndlestick.
• The secon
nd candle shhould at leaast make it up all the way
w up to the
t midpoinnt of the
first candlle.
• The third candlestickk needs to close abovve the first candle’s hiigh to conffirm that
buyers haave overpow
wered the strrength of thhe downtren
nd.

Three IInside Dow

wn Candlesttick Pattern

The thrree inside doown candleestick formaation is founnd at the to

op of an upttrend. It meeans that
the uptrrend is posssibly over and that a new downntrend has started. A three insidde down
candlesstick formation needs have
h the folllowing charracteristics:

• The first caandle shoulld be foundd at the top of an uptrrend and is characterizzed by a
long bullish
h candlesticck.
• The secondd candle shhould makee it up all the way doown the miidpoint of the first
candle.
• The third candlestick
c needs to close
c below
w the first candle’s lo
ow to confi
firm that
sellers havee overpowerred the strenngth of the uptrend

Japanesse Candlesttick Cheat Sheet

S

mber of Barrs
Num Can
ndlestick Name
N Bullish or Bearish? What
W It Loooks Like?

1 S
Spinning Toop Neutraal

55 
 
 1 Doji Neutraal

1 W
White Marubozu Bullishh

1 Bllack Maruboozu Bearish

1 Hammer Bullishh

1 H
Hanging Maan Bearish

1 Invverted Ham
mmer Bullishh

1 S
Shooting Star Bearish

2 Buullish Engulfing Bullishh

56 
 
 2 Beaarish Engullfing Bearish

2 T
Tweezer Topps Bearish

2 Tw
weezer Bottooms Bullishh

3 M
Morning Staar Bullishh

3 E
Evening Staar Bearish

3 Threee White Sooldiers Bullishh

3 Thrree Black Crrows Bearish

3 Thhree Inside Up Bullishh

57 
 
 18 Thrree Inside Down
D Bearish

58 
 
 IND
DICATO
ORS

1. Fibonacci Retraacement

A term used in tecchnical anallysis that reefers to areaas of supporrt (price sto
ops going loower) or
resistannce (price sttops going higher).
h Thhe Fibonacci retracemeent is the po
otential retraacement
of a finnancial asseet's original move in price.
p Fibonnacci retraceements use horizontal lines to
indicatee areas of support or resistance
r vels before it continuees in the
att the key Fibonacci lev
originall direction. These leveels are creaated by draawing a trennd line bettween two extreme
points aand then div
viding the vertical
v distance by thhe key Fibo
onacci ratioss of 23.6%,, 38.2%,
50%, 611.8% and 1000%.

Fibonaccci retracem
ment is a veery popular tool used by
b many tecchnical trad
ders to help identify
strategic places fo
or transactioons to be placed,
p o stop losses. The nootion of
targget prices or
ment is usedd in many indicators
retracem i s
such as Tiroone levels, Gartley pattterns, Ellioott Wave
theory and more. After a significant price movem
ment up orr down, thee new suppport and
resistannce levels arre often at or
o near thesee lines.

59 
 
• Livee example

The aboove are the live

l examplle taken from
m my HIC demo accouunt. In this live
l examplle I have
a the high of 122.6900 the day was 14th mayy 2015 till the
draw a Fibonacci at t low of 224th july
2014 att 1076.85.

In this ccase we cann clearly seee that the prices are in a range in 100 to 61.88 level of fiibo from
14th maay 2015 to 6th July 20155

On 7th oof July 20155 a strong bear

b candle was observved and the fibo level of
o 61.8 was crossed
and it was
w a signall of trend chhange and then
t for few
w days the price
p was beetween 61.88 to 50.0
levels.

The canndle formedd on 20th off July 2015 was droppeed till the level of 108
83.40 USD and that
was a sstrong bear trend and as
a the candlle closed in the range of
o 23.00 to 0.0 of fiboo levels ,
the pricce will fluctuuate in that range until a strong brreak up happ
pens and thee bear trendd change
to bull trend.
t

60 
 
2. Pivott points

A technnical analysis indicator used to dettermine the overall trennd of the market
m over different
d
time fraames. The pivot
p point itself is sim
mply the average of thee high, low
w and closinng prices
from thhe previouss trading daay. On thee subsequennt day, trad
ding above the pivot point is
thoughtt to indicatee ongoing bullish
b sentiiment, whille trading below
b the piivot point indicates
bearish sentiment.

A pivott point anallysis is ofteen used in conjunctionn with calcuulating support and reesistance
levels, similar to a trend linne analysiss. In a pivot point annalysis, thee first suppport and
resistannce levels are
a calculateed by usingg the widthh of the traading range between thhe pivot
point annd either thee high or loow prices off the previouus day. Thee second suppport and reesistance
levels are
a calculateed using thee full width between thee high and low
l prices of
o the previoous day.

61 
 
3. Stoch
hastic Osciillator

A technnical momeentum indiccator that coompares a security's

s closing pricee to its pricce range
over a ggiven time period.
p Thee oscillator'ss sensitivityy to market movementss can be redduced by
adjustinng the timee period or by taking a moving average off the resultt. This indiicator is
calculatted with thee following formula:

%K = 1100[(C - L1
14)/(H14 - L
L14)]

C = the most recen

nt closing prrice

L14 = thhe low of thhe 14 previoous trading sessions

H14 = tthe highest price

p tradedd during thee same 14-day period.

%D = 33-period mooving averagge of %K

The theeory behind

d this indicaator is that in an upwaard-trendingg market, prices
p tend to close
near theeir high, annd during a downward--trending m
market, pricees tend to cllose near thheir low.
Transacction signalss occur wheen the %K crosses
c throough a threee-period movving averagge called
the "%D
D".

62 
 
 • Live examp
ple

As we can see sttochastic oscillator indicator givves a picturre of buy and sell. Basically
B
stochasttic indicate a oversold position when its betw
ween 0 to 20 range andd it means the
t price
will rem
main in thatt range for more
m two orr three dayss and then thhe price will rise as the sellers
exhaustted and buyers comes in position.

As we can see froom 19th andd 20 augustt stochastic was in ran

nge of 80 too 100 and that
t is a
overbouught positioon slowly thhe price willl fall.

63 
 
4. Relattive Streng
gth Index (R
RSI)

A technnical momenntum indicaator that com

mpares the magnitude
m o recent gaains to recennt losses
of
in an atttempt to determine
d ovverbought and
a oversolld conditionns of an asset. It is caalculated
using thhe followingg formula:

RSI = 1100 - 100/(1

1 + RS*)

*Wheree RS = Averrage of x daays' up closees / Average of x days' down closees.

As youu can see frrom the chaart, the RSI ranges frrom 0 to 1000. An asseet is deemeed to be
overbouught once thhe RSI apprroaches the 70 level, meaning
m thaat it may be getting oveervalued
and is a good canddidate for a pullback. Likewise,
L if the RSI appproaches 300, it is an inndication
that the asset may be
b getting oversold
o andd therefore likely
l to become underrvalued.

A tradeer using RSI should bee aware thatt large surgges and dropps in the prrice of an assset will
affect the
t RSI by creating false
f buy orr sell signaals. The RS
SI is best used
u as a valuable
v
complem her stock-piccking tools.
ment to oth

64 
 
5. Moviing Averagge Converggence Diverrgence

A trendd-followingg momentum
m indicatorr that show
ws the relattionship bettween two moving
averagees of prices. The MAC
CD is calculated by suubtracting thhe 26-day exponential
e moving
averagee (EMA) froom the 12-day EMA. A nine-dayy EMA of the
t MACD, called thee "signal
line", iss then plotteed on top off the MACD
D, functioninng as a triggger for buy and sell siggnals.

There are
a three com
mmon methhods used too interpret thhe MACD:

1. Crosssovers - As shown in thhe chart aboove, when the MACD falls below the signal line,
l it is
a bearissh signal, which
w indicaates that it may be tim
me to sell. Conversely
C y, when the MACD
rises abbove the sig
gnal line, thhe indicator gives a bulllish signal,, which sugggests that the
t price
of the aasset is likeely to experrience upward momenntum. Many
y traders waait for a coonfirmed
cross abbove the siignal line before
b enterring into a position too avoid gettting "faked out" or
enteringg into a position too earrly, as show
wn by the firrst arrow.

2. Diveergence - When
W the seccurity price diverges from
fr the MA
ACD. It sig
gnals the ennd of the
current trend.

matic rise - When the MACD

3. Dram M i the shortter moving average
risees dramatically - that is,
way from thhe longer-terrm moving average - itt is a signal that the seccurity is oveerbought
pulls aw
and will soon returrn to normall levels.

65 
 
Traders also watch for a move above or below the zero line because this signals the position
of the short-term average relative to the long-term average. When the MACD is above zero,
the short-term average is above the long-term average, which signals upward momentum.
The opposite is true when the MACD is below zero. As you can see from the chart above, the
zero line often acts as an area of support and resistance for the indicator.

66 
 
6. Ichim
moku

A technnical indicattor that is used

u to gaug
ge momentuum along with
w future areas
a of suppport and
resistannce. The Ich
himoku indicator is com
mprised of ffive lines caalled the tennkan-sen, kiijun-sen,
senkou span A, seenkou spann B and chiickou span. This indiccator was developed
d so that a
trader ccan gauge an
a asset's trrend, momeentum and support
s andd resistance points withhout the
need off any other technical
t inddicator.

"Ichimooku" is a Jappanese wordd that meanns "one lookk." This chaarting techniique was creeated by
a Japannese newspaaper writer. It does loo mplicated when a tradeer sees the indicator
ok very com
for the first time, but
b don't hessitate to givve this indiccator a try because
b the complexityy quickly
disappeears once yoou gain an uunderstandiing of what the variouss lines meann and why they are
used.

67 
 
7. Bolliinger Band
ds

A bandd plotted tw
wo standard deviations away from
m a simple moving
m averrage, developed by
famous technical trrader John Bollinger.
B

In this eexample off Bollinger Bands®,

B thee price of thhe stock is banded
b by an
a upper annd lower
band aloong with a 21-day
2 simpple moving average.

Becausee standard deviation

d is a measure of volatilityy, Bollingerr Bands® adjust
a themsselves to
the marrket conditiions. Whenn the markeets becomee more volaatile, the bands widenn (move
further away from
m the averagge), and durring less voolatile perio
ods, the bannds contracct (move
closer to
t the averaage). The tiightening of the bandss is often used by techhnical tradeers as an
early inndication thaat the volatiility is abou
ut to increasee sharply.

This is one of the most popullar technicaal analysis techniques.

t The closer the prices m
move to
the uppper band, thee more overrbought thee market, annd the closeer the pricess move to thhe lower
band, thhe more oveersold the market.
m

Live exxample

68 
 
 69 
 
8. Moving Avverage (MA
A)

A wideely used inddicator in teechnical anaalysis that helps

h smootth out pricee action by filtering
out the “noise” fro
om random price
p fluctuuations. A moving
m averrage (MA) is
i a trend-foollowing
or laggiing indicatoor because it is based on past prrices. The tw
wo basic annd commonnly used
MAs arre the simplle moving average
a (SM
MA), which is the simpple average of a securitty over a
definedd number off time perioods, and thee exponentiial moving average (E
EMA), whicch gives
bigger w
weight to more
m recent prices. Thee most com M are to identify
mmon appliccations of MAs
the trennd direction
n and to deetermine suupport and resistance
r levels.
l Whiile MAs are useful
enough on their own,
o they also
a form the
t basis for
f other in
ndicators suuch as the Moving
Average Convergeence Divergence (MAC
CD).

70 
 
 FINDINGS, SUGGESTIONS AND CONCLUSION

Finding:

• Technical analysis is a method of evaluating securities by analyzing the statistics

generated by market activity. It is based on three assumptions 1) the market discounts
everything, 2) price moves in trends and 3) history tends to repeat itself.
• One of the most important concepts in technical analysis is that of a trend, which is
the general direction that a security is headed. There are three types of trends:
uptrend’s, downtrends and sideways/horizontal trends.
• The market moves because of three factors and that is 1)technical analysis
2)fundamental analysis 3)fundamental analysis and so if the prices are low and
technical analysis is showing buy but the fundamentals are not supporting the
technical then there is a possibility of price falling more low. All the three indicators
should be kept in mind.
• The major fundamental affecting gold price are demand and supply, important
economic news of USA such as GDP, nonfarm pay rolls, Interest rate hike or any
other important news such as euro zone crises and quantitative easing and so these
news are kept in mind with technical analysis for profitable investments.
• The market moves technically when all other factors are not active and so at that time
the indicators and trends play a vital role.

CONCLUSION

The trend analysis of commodities is an aspect of technical analysis that tries to predict the
future movement of price of commodity and currency based on past data, this analysis based
on the idea that what happened in the future. From this study I learn the various aspect that
will help me for analysis from the above study I also lean the aspect regarding the procedure
followed for commodity trading at Royal Future Consultant Pvt. Ltd. Pune.

RECOMMANDATION

• It is better to study of the world market because the prices of the gold and silver are
decided by the world demand and supply.

71 
 
 • If after investing in the gold and silver if the prices fall don’t go out of it wait for rise
in the prices if any surety is there about more fall in the prices then sell it again buy
for hedging purpose
• Buy gold or any other commodity at low price and sell at high price but the take profit
and stop loss should be decided very carefully and with help of various indicators and
past trends.
• Trading should be avoided during fundamental news time like USA GDP news or
interest rate hike news because though technical indicators are showing buy signal but
market is very volatile at such time and there is possibility of further downtrend.
• During trading all the three indicators should be kept in mind. Because market moves
by all the three forces technical, fundamental and sentimental analysis.

72 
 
 BIBLIOGRAPHY

Websites:

• Babypips.com
• Kitko.com
• Investopedia.com
• StockCharts.com

73