BEHAVIOR OF AUD/USD IN FOREX MARKET

A SUMMER INTERNSHIP REPORT

Submitted by

PRASANTHI R

1811070

in partial fulfillment of Summer Internship for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

THIAGARAJAR SCHOOL OF MANAGEMENT

PAMBAN SWAMY NAGAR, THIRUPARAKUNDRAM
MADURAI, 625005

AUGUST – 2019
 CERTIFICATE

Certified that the summer internship programme report “Behavior of AUD/USD in

FOREX Market” is the bonafide work of PRASANTHI.R, 1811070 MBA in
Thiagarajar School of Management, Madurai carried out under my supervision
during May 2019 to August 2019.

Place: Madurai
Date: DR. NALINI G S
Faculty Supervisor
Assistant Professor

I
II
 DECLARATION

I certify that

a. The work contained in this Summer Internship Programme report is original and has done

by myself under the supervision of my Industry and Faculty supervisors.

b. The work has not been submitted to any other Institute for any degree or diploma.

c. I have followed the guidelines provided by the Institute in writing the report.

d. I have confirmed to the norms and guidelines given in the Ethical Code of Conduct of the

Institute.

e. Wherever I have used materials (data, theoretical analysis and text) from other sources, I

have given due credit to them by citing them in the text of the thesis and giving their

details in the references.

f. Wherever I have quoted written materials from other sources, I have put them under

quotation marks and given due credit to the sources by citing them and giving required

details in the references.

Prasanthi R

III
 ACKNOWLEDGEMENT

I put forth my heart and soul to thank JMarathon advisory Services Pvt., Ltd for

providing me with the opportunity to pursue my Summer Internship with them.

I also extend my deep sense of gratitude to Mr. S. Krishnakumar, HR, JMarathon

advisory Services Pvt., Ltd for giving me the opportunity to undertake my Internship program. I

am thankful to Mr. Sukesh Reddy, Portfolio manager, JMarathon advisory Services Pvt., Ltd

for the valuable suggestions, constant support and guidance throughout the duration of the

project as my Organizational guide.

I like to express my sincere thanks to Prof N. Venkiteswaran, Director, Thiagarajar

School of Management, without his approval I would not have done this project.

I am thankful to Dr. M. Selvalakshmi, Principal, Thiagarajar School of Management, for her

full- fledged support.

I would like to thank Prof. M Balaji, Dean M.B.A, Faculty, Thiagarajar School of

Management, for providing full support and guidance which made me complete this project.

I would also like to thank Dr. Nalini G.S, Assistant Professor, Thiagarajar School of

Management, who helped me throughout the internship period by providing proper guidance.

Finally, I extend my heartfelt thanks to my friends and family members who have been a

source of inspiration and support during my internship.

IV
 EXECUTIVE SUMMARY

Investments are becoming a major part in our lives. These investments can be done

through many ways like fixed deposit, share market, commodities etc based on their interest.

This project has been concentrated on the FOREX market. There are many currencies that are

being traded in FOREX market. Among that, the behavior of AUD/USD has been analysed using

technical analysis. The internship mainly deals with the learning part which comprises the

technical analysis of both FOREX and Indian market. The objective has been achieved by

analyzing AUD/USD using all the patterns and indicators which were taught by the organization.

Not only the technical part but also the fundamentals were brushed. Apart from concepts, few

strategies were also taught by the organization. With the little basic knowledge about the stock

market, this Summer Internship Programme has been taken in order to improve further.

With the help of charts from the website “Investing.com”, all the concepts have been

applied and thereby identified the condition of the AUD/USD market in the month of June,2019.

This project tells about the entry and exit points, pending order and the market strength

predictions. The AUD/USD currency has been analysed using the patterns like single

candlestick, double candlesticks and three candlesticks for five years from June,2014 to June,

2019. The analysis includes monthly candlestick. The price of AUD/USD in June 2019 has also

been predicted with the help of indicators like Relative strength index (RSI), Bollinger band,

Moving average, Average directional index, Resistance and support. It has been predicted that

the price of June 2019 will increase and it has been verified.

V
VI
VII
 LIST OF TABLES

TABLE NO TABLE PAGE NO

5.1 June (2019) price analysis 38

VIII
 LIST OF FIGURES

FIGURE NO DESCRIPTION PAGE NO

5.1 Bearish pattern of AUD/USD 24

5.2 Bullish pattern of AUD/USD 25
5.3 DOJI – AUD/USD 25
5.4 Hammer pattern of AUD/USD 26
5.5 Hanging man pattern of AUD/USD 27
5.6 Inverted Hammer pattern of AUD/USD 27
5.7 Shooting star pattern of AUD/USD 28
5.8 Bullish engulfing pattern of AUD/USD 29
5.9 Bearish engulfing pattern of AUD/USD 29
5.10 Bullish harami pattern of AUD/USD 30
5.11 Bearish harami pattern of AUD/USD 30
5.12 Morning star pattern of AUD/USD 31
5.13 Evening star pattern of AUD/USD 32
5.14 Relative Strength Index of AUD/USD 33
5.15 Bollinger band of AUD/USD 34
5.16 Moving Average of AUD/USD 35
5.17 Average Directional Index of AUD/USD 36
5.18 Resistance and Support – AUD/USD 37
5.19 June Price Candlestick 38

IX
 LIST OF ABBREVIATIONS

AUD/USD - Australian Dollar Vs United States Dollar

FOREX - Foreign Exchange
RSI - Relative Strength Index
EMA - Exponential Moving Average
PIP - Percentage in Point
ADX - Average Directional Movement Index

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 CHAPTER I - INTRODUCTION

Learn from mistakes! Learn to take a loss!!

Rakesh Jhunjhunwala
1.1 Introduction

Investment is becoming an inseparable part in our life from Children’s education to

savings for retirement. This investing mentality differs from person to person. Some people are
risk appetite and some are risk averse. Fixed deposit, recurring deposit and others act like
savings limit for risk averse. But risk appetites are the people who are ready to take risk and will
be interested in equity part. “Incentive investments in Initial Public offerings, Mutual Funds,
setup Development mission” – The Hindu (dated on 19.06.2019). This statement tells that if
there are more investments in stocks it would act as a helping hand for development of nation.
Still in India, the mindset of the people is toward the low risk investments. But with excellent
knowledge and predictable ability, equity markets will definitely shower the profits.

1.2 FOREX Market

In Indian Equity market the analysis of different sector has been done and there by the
shares of those analyzed companies are being traded. But FOREX market deals with the
currency trading. These can be traded by using both fundamental and technical analysis. Not
only the currencies but also commodities can be traded. Generally, FOREX market operates 24
hours for 5 working days (24x5).

1.2.1 FOREX Currencies and Lots

There are seven major currency pairs.

 USD/JPY – US dollar Japanese yen

 USDCAD – US dollar Canadian dollar
 EUR/USD – Euro US dollar
 GBP/USD – Great Britain pound US dollar
 USD/CHF – US dollar Swiss france,44

1
  NZD/USD – New Zealand dollar US dollar
 AUD/USD – Australian dollar US dollar

There are two major commodities:

 XAU/USD – Gold US dollar
 XAG/USD – Sliver US dollar

The first currency is the base currency or first order currency and the second currency is the
quote or second order currency. Among all these major currencies, USD is most actively traded
currency and Euro is most actively traded counter currency.

There are three kinds of lots:

 Micro lot which comprises 1000 units
 Mini lot which comprises 10000 units
 Standard lot which comprises 100000 units

1.3 Indian Market

Players of Indian market are retail investors, institutional investors and traders. The
market timings will be 9.00AM to 9.15 as pre-opening session, 9.15 to 9.30 as market session
and market will close at 3.30PM. The products which are traded in Indian market are stocks,
commodity, bonds, derivatives, exchange traded fund (ETF). The major exchanges are National
stock exchange (NSE) and Bombay stock exchange (BSE).

1.4 Fundamental Analysis

Fundamental analysis will include the analysis of company, Economic, Industry and
Company analysis (EIC analysis), Political factors, Social factors, NEWS etc. This type of
analysis is meant for long term positioning. FOREX Factory is the website which gives
information about the international news and thus it can be helpful to analyze the market in
fundamental way. This fundamental analysis will be useful for forecasting the future currency
pattern. Both the non-financial and financial activities are included in this kind of analysis.
Financial analysis insists on the ratio analysis and annual report analysis etc. Non-financial deals

2
with the image of the company, technology and the products or services which the company
provide.

1.4.1 Factors Affecting Fundamental

 Interest Rate
If the banks interest rates are more, then there will be more investments which in turn
makes the market strong.
 Inflation
Inflation will be reflecting on both Consumer Price Index and Producer Price Index. If
inflation is more, then interest rate will be more which makes the strong market.
 Unemployment
If unemployment rate is more, then there will be no money in the hands of people and
thus money supply will be reduced, inflation will be reduced, interest rates will start to
decrease and the currency will become very weak.
 Gross Domestic Product (GDP)
If GDP increases, then the market will become strong.
 Retail Sales
If the sales get increased, economic growth will be improved and thus the market will
become strong.

1.5 Technical Analysis

Technical analysis deals with the analysis of Patterns, Candle stick, Charts of the
particular currency. This analysis can be only helpful for short term positioning. It depends on
the prices and the lots size i.e. the opening price, high price, low price and closing price of the
candle and micro, mini and standard lots in terms of volume. Indicators and strategies can be
used for technical analysis.

Thus in order to get profits, both fundamental and technical analysis has to be done
before entering into the trading session.

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1.6 Software and Websites

Some of the software and websites used for fundamental and technical analysis are:

 Meta Trader 5 – This software gives access to the financial markets and helps the
investors to perform the technical analysis in FOREX market. The demo as well as real
account trading can be done by using this software.
 Forex Factory – This website is used for obtaining information about the fundamentals
for FOREX market trading
 Investing.com – This website is used to perform technical analysis for both FOREX and
Indian market
 Money Control - This website is used for obtaining information about the fundamentals
for Indian market trading
 NSE India – This website is for Indian market which gives information about National
stock exchange
 Zerodha Margin Calculator - This website is for Indian market for calculating margins
for trading

1.6.1 FOREX Factory

The website FOREX factory will give the NEWS impacts which affect the market by
indicating it in different colours. Yellow indicates low impact, orange indicates medium impact
and red indicates high impact. For high impact news, technical analysis will not work for next 1
hour. There will be actual and forecast impact. If the forecast is more than the actual then, that
particular currency is considered as weak. If the base currency is strong, then the currency can be
bought and if base currency is weak, then it can be sold. If both the currencies are strong then it
is not advisable to buy or sell the particular pair.

For eg: for the currency CAD, consider actual as 0.2% and forecast as 0.4%. Forecast is more
than actual and therefore CAD is weak. If we take its pair like USDCAD, here CAD is weak and
USD (base) is strong. Therefore, it is advisable to buy only USD pairs and not the Canadian
pairs.

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1.7 Types of Trade

There are four different types of trade.

 Intraday – The trade which happens in single day i.e. within 24 hours in FOREX is
Intraday trading. If the trade is not closed by the trader, then it will be automatically
closed. This is called as Square off.
 Swing – If the trade continuous for more than a week then it is called as swing
 Long Term – If the trade continuous for years then it is called long term trade
 Delivery – Holding the stock for next day irrespective of swing is called as delivery.

1.8 Objectives

 To learn the Indicators and strategies used for technical analysis.

 To study the behavior of AUD/USD in FOREX market using technical analysis.
 To predict the June, 2019 price of AUD/USD using indicators.

1.9 Scope

JMarathon advisory services private limited gave an opportunity to gain theoretical

as well as practical knowledge about both Indian and Foreign Exchange. The strategies and the
indicators are very much useful to trade in the real account. The theoretical part taught by the
company helped me to reach my above stated objective. This internship program plays a role in
my future investment plans. The currency, AUD/USD has been analysed in the month of June,
2019. Only technical analysis part has been focused in this project. Indicators which are used to
perform the technical analysis are

 Relative Strength Index

 Bollinger Band
 Moving Average
 Average directional Index
 Resistance and Support

5
 CHAPTER II - COMPANY PROFILE

2.1 Sector Profile – Financial Services

Financial services include the fund and money management field. This includes stock
brokerage, insurance services, hedge funds, accounting services, investment banking etc.
Currently this sector has a very good growth. Many people are being benefited regarding their
basic financial needs, occupational needs like loans etc., Micro and small units are also getting
benefited. India gets the advantages like growing demand, policy support, innovation and
growing penetration. Asset management industry is also facing an exponential growth. The
initiatives of the government in financial sector include 49% Foreign Direct Investment
Automatic Route, Bank recapitalization and reduction in securities transaction tax. In 2017, India
scored a perfect 10 in protecting shareholders’ rights. In terms of secondary market, BSE and
NSE got permission from SEBI to launch the commodity derivatives as trading part from Oct 1,
2018. The total companies listed in BSE and NSE is about 7,284 as of 2018. Initial public
offering (IPO) is also faced rapid growth. As of Feb 2019, The total amount of IPO is about at
Rs. 14,032 Crore (US $ 1.94 billion). Indian rupee is also raising against US dollar. There is no
doubt that Indian market and financial services will march towards a glorious growth.

2.2 Organization Profile

JMarathon advisory services private limited company provides the financial advices and
maintains portfolios of clients in terms of both FOREX and Indian equity market by helping
them to achieve short term as well as long term financial equity goals. The company is also into
educating and training the individuals on global markets. The headquarters is in Bangalore with
two branches in Chennai and Hyderabad.

2.3 History of the Company

JMarathon advisory services private limited was established in the year 2016 and
previously named as JWings manifest wealth. The reason for name change of the company is for
establishing it as a private company. They provided services regarding stock market, Advisory
services, Wealth creation and Insurance.

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2.4 JMarathon Vision Statement
To be the most trusted & respected professional services firm recognized by our clients
delivering excellent services, which is value for money & more than their expectations.

2.5 JMarathon Mission Statement

To develop meaningful & life long relationship with the clients by providing them the
highest quality services & address every aspect of their financial related issues.

2.6 Core Values of JMarathon

 Passion
"To learn & Earn"

 Integrity
There is no shortage of analysis interested in investing.

 Pursuit of Excellence
To provide training and education to create awareness programs on investment
by experienced personalities.

 Collaboration
Have tie-ups with various trading agencies domestic & International and to
provide financial products of banks and financial institutions.

 Accountability
Compliance and Due diligence with Regulators is on top priority.

2.7 Services of JMarathon

 Training and Development
The training has been given to the students with market interest. All the strategies for
intraday trading will be provided. The training will be in the form of demo account and also
periodical tests will be conducted. This in turn also helps the self-investment planning of the
student.

7
 Investment Planning
To safeguard the future from any crisis; we need to make the right kind of future
investments to achieve certain goals in life. To invest better and safe, investments, risks,
inflation, systematic planning has to be understood. Thus, JMarathon urges to make
investment for better future planning.
 Advisory Services
Portfolio management is an another area where funds are being pooled from the clients
and the portfolio managers advise them to invest in blue-chip stocks or currency markets.
 Indian Stock Market and FOREX Market Portfolios
JMarathon has a tie- up with “Zerodha” Company to open demat account for Clients and
also has tie-up with “Grand Bloom Company Forex Limited” to open International FOREX
account.
2.8 Branch Information
The internship offered by the company is in Chennai branch. This branch is recently
opened by the entrepreneurs.
HR – Krishna kumar S
Organizational guide – Sukesh reddy k
2.9 Product of the Company – Online Course
20% of the internship part is of marketing. The product of this company is an online
certification course named “LEARN2EARN INDIAN STOCK MARKET AND FOREX
MARKET” which comprises 39 lessons, valid for 180 days and it is of online streaming access.
It covers both the Indian and FOREX market. This course provides the best trading, investing
strategies and knowledge about systematic future investment. This course is often updated with
latest trend patterns of the market.

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 CHAPTER III - REVIEW OF LITERATURE

3.1 Introduction
All literatures referred for this project are related to the market analysis. This also
includes the behavioral pattern of the traders in the stock market. Most of the papers focus on the
profitability. Forecasting ability of marketers is also mentioned. All over, this review gives the
holistic view of getting profits with the help of both fundamental and technical analysis.

3.2 Literature Review

Curcio (1997) studied about the intraday market profitability situations. The conclusion of this
paper is neither the technical advices nor the simulation can provide the profitability. But the sub pattern
and sub trend analysis can provide profits. The research has been done based on the support and
resistance and Moving Average Indicator. The final statement was that using moving average indicator,
the investor can be profited. There was no efficiency with the analysis.

Maillet and Michel (2005) examined the technical analysis yield perfect profits in
European currency exchange rates. The strategy behind all these success was accessing the
market with the use of moving average indicator. The research has been done based on Moving
Average Indicator. The sample which the researchers took has the less volatile nature, so it can
also be observed that the analysis was not useful.

Loh (2007) studied the approach of traders towards technical analysis. The study was
based on the simultaneous use of both trend and indicators. When the indicators alone were used,
the predictive ability of the trader was very excellent and 50% were very accurate. The forecast
was in the exact direction as they predicted. This showed the improvement of forecasting when
compared to previous years. Low sample size was the limitation of this paper.

Ponsi (2007) described that technical analysis and FOREX market gives the detailed
information about different patterns in which the trend has formed like head and shoulder pattern
and double top pattern. This also tells about the trend formation in terms of long term (years).
The Fibonacci technique wass used as an indicator for direction of the trend. The most

9
commonly used Fibonacci ratios are 38.2%, 50% and 68.2%. Thus with the help of these patterns
and indicator the trend of the currency can be predicted easily.

Mizrach and Weerts (2009) studied about the turnover rate in terms of time series. It
was founded that there is a relationship between the breaching of both n-highs and n-lows and
the turnover. There was a positive turnover when the period is for long positioning even after the
analysis of news report, performance based on dividends etc. But no attention was given to smaller
set of headline facts.

Bettman, Sault and Schultz (2009) analysed technical and fundamental analyses and it
was found that both were complements to each other rather than substitutes in equity evaluation
of share prices. When both were individually performed, each result was in profitable manner.
ANOVA has been performed in this research, which gave an excellent adjusted R2 value of 75%
which in turn implies that 75% of fundamental analysis was explained by technical analysis.
Thus this paper confirmed that both analyses are related to each other. But there were no
implications in the context of other valuation exercises.

Bonenkamp, Homburg and Kempf (2011) proved that even though technical analysis
was useful, fundamental also played a major role in determining the profits. In order to have a
clear cut view and stable outcome, combination strategy (both technical and fundamental) should
be used. As the fundamental information is publicly available this makes easier for trading.
Based on the past company’s information and operational cash flows, one can easily predict and
forecast the trend. Multiple regression was done but there is no information about risk and return
analysis.

Shynkevich (2016) found that during major financial crises, the technical analysis with
technical trading set rules were able to give abnormal profit in developed equity markets like
North America, western Europe and Asia-Pacific region. Mean and standard deviation were used
for analysis. There was no relationship between volatility and market efficiency which results in
a negative impact in terms of profit i.e. it is hard to earn profits during the ultimate financial
distress.

10
 Cook (2017) analyzed that there was a decreasing pattern in the portion of technical
analysts in the U.S. equity market since 1970s. A simple asset pricing model has been modeled
and it predicted that both risk and return were increasing in the portion of technical analysts.
Across six countries, this prediction has been confirmed the results. It was also analyzed that
when there are many technical analysts in market, there is more volatility. But no forecasting has
been done.

Lorig, Zhou and Zou (2019) investigated on the exponential moving averages (EMA) of
an underlying risky asset. Mathematical analysis has been done for EMA. This indicator gave
best results for the buy and hold strategy. The buy-and-hold strategy had a slightly higher Sharpe
ratio when we use EMA as an indicator. Since the transactional costs are large, this article
suggested the traders to be caution during their trading by using EMA.

3.3 Summary
All the papers and books are reviewed based on the indicators and analysis (technical and
fundamental analysis). From the literature review, it can be seen that Moving Average indicator
gives more profit than other indicators. It is also proven that both technical and fundamental
analysis have to be done in order to gain more profits. During financial crisis, it is better to hold
than trading.

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 CHAPTER IV – CANDLESTICKS AND INDICATORS

4.1 Introduction

This project is mainly based on the analysis of the FOREX market. The largest market in
the world is this FOREX Market which deals with $5 trillion transactions. Generally, investors
will have the confusion about the analysis part. Analysis of currency can help to earn profits with
their investment rather than making loss. Basically virtual trading can help the traders in the
initial stage to understand the market movement. Thus, Analysis can be done with the help of
following.
4.2 Types of Analysis
There are two types of analysis: Fundamental analysis and technical analysis.
4.2.2 Fundamental Analysis
Fundamental analysis will include the analysis of company, Economic Industry and
Company analysis (EIC analysis), Political factors, Social factors, NEWS etc. This type of
analysis is meant for long term positioning. FOREX Factory is the website which gives
information about the International News and thus it can be helpful to analyze the market in
fundamental way. This fundamental analysis will be useful for forecasting the future currency
pattern. Both the non-financial and financial activities are included in this kind of analysis.
Financial analysis insists on the ratio analysis and annual report analysis etc. Non-financial deals
with the image of the company, technology and the products or services which the company
provide.

4.2.3 Technical Analysis

Technical analysis deals with the analysis of Patterns, Candle stick, Charts of the
particular currency. This analysis can be only helpful for short term positioning. It depends on
the prices and the lots size i.e. the opening price, high price, low price and closing price of the
candle and micro, mini and standard lots in terms of volume. Indicators and strategies can be
used for technical analysis.

Thus in order to get profits, both fundamental and technical analysis has to be done
before entering into the trading session.

12
4.3 Trading Terms and Concepts
Position

The holding of stocks or currencies is technically called as Positioning. The position is of

two types: long and short position.

 Long – buy and sell

 Short – sell and buy

Spread

Spread is the difference between bid price and offer price. If bid price is 1.13063 and sell
price is 1.13100 then the spread 37 which is the difference between bid price and sell price.

Pip

Percentage in point (Pip) is standardized unit which represents very small change in
currency in terms of places like ones, tens, and hundreds and so on. For eg: if the price is 2.1234
then, (from the last decimal) 4 is 4 pips, 3 is 30 pips, 2 is 200 pips, 1 is 1000 pips and 2 is 20000
pips.

4.3.1 Candlestick

Candle stick will contain body and wicks (Shadow). There are two major types of Candle stick.
They are Bullish and Bearish candle.

Bullish

The bullish candle is a green coloured body with high price, closing price at the upper
wick and low price, opening price at lower wick. This bull candle denotes the uptrend.

Bearish

The bearish candle is a red coloured body with high price, opening price at the upper
wick and low price, closing price at lower wick. This bear candle denotes the downtrend.

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DOJI

When the opening and closing price of a candle are same, then the candlestick is called as
DOJI. It has no significance but it acts as a trend reversal indicator.

4.3.2 Candlestick Pattern

The main purpose of candlestick pattern is to know about the trend reversal. There are
three types of Candlestick pattern. They are Single Candlestick, Double Candlesticks and three
Candlesticks.

A. Single Candlestick

Single candlestick has 4 types of pattern they are Hammer, Hanging man, Inverted
hammer and Shooting star.

i) Hammer represents bullish reversal. The conditions of hammer are

 It should happen at the bottom of the trend
 It should appear after a downtrend which represents that there will be an uptrend
 The Lower wick of hammer should be twice that of the body
 The Upper wick should be smaller than lower wick

Thus, hammer gives the confirmation to buy.

ii) Hanging Man represents bearish reversal. The conditions of hanging man are
 It should happen at the top of the trend
 It should appear after an uptrend which represents that there will be a downtrend
 The lower wick of hanging man should be twice that of the body
 The upper wick should be smaller than lower wick

Thus, hanging man gives the confirmation to sell.

iii) Inverted Hammer represents bullish reversal. The conditions of inverted hammer are
 It should happen at the bottom of the trend
 It should appear after a downtrend which represents that there will be an uptrend
 The upper wick of inverted hammer should be twice that of the body

14
  The lower wick should be smaller than upper wick

So, inverted hammer gives the confirmation to buy.

iv) Shooting Star represents bearish reversal. The conditions of shooting star are
 It should happen at the top of the trend
 It should appear after an uptrend which represents there will be a downtrend
 The upper wick of shooting star should be twice that of the body
 The lower wick should be smaller than upper wick

Thus, shooting star gives the confirmation to sell.

B. Double Candlesticks

Double or two candlesticks has four patters such as Bullish engulfing, Bearish engulfing,
Bullish harami and Bearish harami.

i) Bullish Engulfing represents bullish reversal. The conditions for bullish engulfing are:
 It should happen at the bottom of the trend
 It should appear after a downtrend which represents that there will be an uptrend
 Previous candle should be bear and present candle should be bull
 Bull candle should engulf the bear candle including its wick

So, bullish engulfing gives the confirmation to buy.

ii) Bearish Engulfing represents bearish reversal. The conditions for bearish engulfing are:
 It should happen at the top of the trend
 It should appear after an uptrend which represents that there will be a downtrend
 Previous candle should be bull and present candle should be bear
 Bear candle should engulf the bull candle including its wick

So, bearish engulfing gives the confirmation to sell.

iii) Bullish Harami represents bullish reversal. Harami is suitable for long term investment. The
conditions for bullish harami are:
 It should happen at the bottom of the trend

15
  It should appear after a downtrend which represents that there will be an uptrend
 Previous candle should be bear and present candle should be bull
 Bear candle should engulf the bull candle including its wick

So, bullish harami gives the confirmation to buy.

iv) Bearish Harami represents bearish reversal. Harami is suitable for long term investment.
The conditions for bearish harami are:
 It should happen at the top of the trend
 It should appear after a uptrend which represents that there will be an downtrend
 Previous candle should be bull and present candle should be bear
 Bull candle should engulf the bear candle including its wick

So, bearish harami gives the confirmation to sell.

C. Three Candlesticks

Three candlesticks represent two patterns. They are Morning Star and Evening Star.

i) Morning Star represents bullish reversal. The first and third candlesticks are longer than
second. The conditions for morning star are:
 It should happen at the bottom of the trend
 It should appear after a downtrend which represents that there will be an uptrend
 First candle should be bear and third candle should be bull
 Second candle can be bull or bear

So, morning star gives the confirmation to buy.

ii) Evening Star represents bearish reversal. The first and third candlesticks are longer than
second. The conditions for evening star are:
 It should happen at the top of the trend
 It should appear after an uptrend which represents that there will be a downtrend
 First candle should be bull and third candle should be bear
 Second candle can be bull or bear. So, evening star gives the confirmation to sell.

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4.3.3 Patterns

A. Head and Shoulders

This pattern consists of two shoulders and one head sandwiched between the shoulders. It
denotes the uptrend candle. The line which connects the tip of shoulders is called Neckline. This
neckline can act as both support and resistance. There will be six entry points in one head and
shoulder pattern. The entry should be done when the trend hits the neckline. The exit should be
done when the trend reaches before the support. If support and resistance is broken, short
position can be made (buy and sell). It is the most reliable pattern. Not only in horizontal but also
this will happen in diagonal trend.

B. Inverted Head and Shoulders

The inverted head and shoulders pattern is similar to head and shoulder but it will be in
an inverted manner. It shows the downtrend candle. If support and resistance have been broken,
then it is advisable for long position. Not only in horizontal but also this will happen in diagonal
trend.

C. Double Top

Double top gives the pattern in which the trend hits the resistance two times. It will hit
the neck line after two triangle formations and the trend will fall. Entry can be done when the
trend hits neckline. If resistance has been broken, then it is advisable for short position.

D. Double Bottom

Double bottom gives the pattern in which the trend hits the support two times. It will hit
the neck line after two triangle formations and the trend will rise. If support has been broken,
then it is advisable for long position.

E. Triple Top

Triple top gives the pattern in which the trend hits the resistance three times. It will hit
the neck line after three triangle formations and the trend will fall. If resistance has been broken,
then it is advisable for short position.

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D. Consolidation

Consolidation represents neither bullish nor bearish and it is weak pattern which proceeds
in the same direction. After consolidation, breakout will happen either to bull or bear.

E. Breakout:

If the current high is greater than the previous high or the current low is lower than
previous low, it will be the breakout pattern. The higher breakdown indicates the uptrend and
lower breakdown indicates the downtrend. When there are small candle continuously for long
time, then breakdown will happen.

4.3.4 Indicators

A. Pivot Point

Pivot points give the strong support and resistance. The low, high, closing and opening
price of previous candle can be taken and substituted in the following formula:

PP = (L+H+O+C)/4 or PP = (L+H+O)/S

B. Reversal

In a trend, newer lows and lower lows are called trend reversal.

C. Retracement

In a trend, the higher lows are called as trend retracement.

F. Fibonacci Retracement

This type of retracement will give the levels which denote four different zones. The
major zone is considered to be 100% of retracement; 60% is minor zone; 59% - 23% is strong
level and 22%-10% is secondary zone.

G. Relative Strength Index (RSI)

Relative strength index is an indicator which indicates whether buyers or sellers are more
in market. RSI was developed by J. Welles Wilder. There are four zones:

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  100 to 70 as overbought zone – if the trend hits 100 and reversed to downtrend then it
can be sold. Whenever price is in overbought, price will reach down.
 70 to 50 zone – this implies buyers’ strength is more – it is advisable to hold
 50 to 30 zone – this implies sellers’ strength is more – it is advisable to hold
 Below 30 is oversold condition – if the trend hits 30 and reversed to uptrend then it can
be bought. Whenever price is in oversold, price will reach up Bearish.

H. Bollinger Bonds

The Bollinger bond developed by John bollinger is an indicator which has three
bands like upper, middle and lower bands. If the trend touches the upper band then the trend is
going to get reverse as a downtrend. Here it is advisable to sell. If the trend touches the lower
band then the trend is going to get reverse as an uptrend. It is advisable to buy the stock. If the
candle is in middle band it is advisable to hold the stock.

I. Moving Average
Moving average will predict the average price in which the next candle can form.
There are three mostly used moving averages (6,12,24), (5,15) and (8,12). (6,12,24) denotes
(hour4, day1, hour1) and (5,15) denotes (hour4, hour1). The most accurate indicator is moving
average. For the best prediction, (5,15) can be used.
There are two types of moving average: simple and exponential.
Simple will give the average of recently closed values of n candlestick. (n can be
specified by the trader). If the price is less than moving average, then it is advisable to sell. In
exponential, the weights will be given to the prices. More weight will be allocated for recent
price. EMA is more accurate than SMA. If fundamental gives the wrong news then, moving
average will not give profit.

J. Average Directional Movement Index (ADX)

This index gives the strength of the market. If the index is more than 50, the
market is very much stronger that there is no consolidation, which further indicates that the
market is fluctuating. If it indicates 40 to 30 then the strength of the market is weak. If it is less

19
than 20 then the market will be in consolidation. There are two other indicators +DL and –DL. If
+DL > - DL, then it is bullish. If – DL > + DL, then it is bearish.

4.3.5 Strategy

A. Support and Resistance

Support and Resistance are the lines which denote the trend reversal. These lines can
be horizontal, vertical and diagonal. Support lies at the bottom of the trend and resistance lies at
the top of the trend. There will be trend zones in the chart which is been separated by many
support and resistances. Once trend hits two or three times the support, the trend may break the
support and it may enter into next zone or there are chances where it can also rise. If trend hits
the resistance two or three times, then it can break the resistance and may elevate towards zone
above the previous one or it may consolidate in the same zone itself.

Thus if candlestick hits a support or resistance,

 It may rise or
 It may fall or
 It may remain in consolidation

This strategy gives the insights that if trend touches the support, it is advisable to buy
and which in turn details the information that there are more sellers. If trend touches the
resistance, decision can be made to sell which gives information that there are more buyers.

B. Trend Line:

The trend lines are the lines which tell about the trend of the currency. These lines
can be horizontal, vertical or diagonal. These trend lines can also be act like support and
resistance lines.

C. Price Action Strategy

In order to take profits, trend line, pin bar and engulfing patterns at the trend line has
to be confirmed before buy/sell/hold. The procedure for this strategy is

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  Trend Line – Draw the trend line for day 1, then for hour 4 and finally for hour 1. This
will give many support and resistances. If the candle is near support, then buy. If the
candle is near resistance, then sell.
 Pin Bar – If there is an occurrence of candle and an inverted candle (both of same size)
simultaneously then it is called the pin bar. This gives the confirmation about the trend
reversal.
 Engulfing – If there is any engulfing at the trend line then it can be finally decided to
buy/sell.
If all the three occurs, then it is the right opportunity to buy/sell accordingly.

D. Indicator Strategy
This represents the Moving average strategy. If the lower moving average crosses
all other averages in an uptrend, then it is advisable to buy and if the lower moving average
crosses all other averages in a down trend, then it is advisable to sell. Lower moving average
should be closer to candlestick. If it is not closer and if it is wider then there will be a reversal.
Closing the trend saves the trader from risk when the moving average is moving away from
candlestick.

4.3.6 Strategies and Indicator for Indian Market

A. Bullish Strategy

This strategy is only for the early marketers who are trading between 9.15 AM to
9.30 AM. This will be working only for 60 seconds and this strategy will not be applied for
holding the stock. The target should be 0.7%. The conditions to be verified to trade are:

 It should be 30 points more than previous day

 It should have a dip after making a high retracement
 It should form a new high

Profits are promised when there is a buy in new high trend.

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B. Bearish Strategy

This strategy is also only for the early marketers who are trading between 9.15
AM to 9.30 AM. This will be working only for 60 seconds and this strategy will not be applied
for holding the stock. The target should be 0.7%. The conditions to be verified to trade are:

 It should be 30 points less than previous day

 It should have a dip after making a low retracement
 It should form a new low

Profits are promised when there is a sell in new low trend.

C. Reversal Strategy

This strategy is for traders who trade in afternoon. This strategy tells that when
there are more buyers, selling is advisable and when there are more sellers, buying the share is
advisable. When there are no sellers or buyers, it is advisable not to enter.

D. Indicator – Moving Average

The moving average indicator is the best indicator for Indian market. (6,12,24)
can be used for analysis.

4.3.7 Placing New Order - FOREX

There are two ways to place an order. They are market execution and Pending order.

Market Execution

In market execution the orders can be placed exactly on the market price. This
also enables to set take profit and stop loss.

Pending Order

Here the order can be placed at the price in which the investor wants to buy or
sell. If the investor is not in real market, then orders can be placed at the price which he/she
wants to buy or sell. If the trend hits the exact price which the investor placed, then execution
will automatically happen. Take profit and stop loss can be placed.
22
There are four kinds of pending order such as buy limit, sell limit, buy stop and sell stop.

Buy Limit

In buy limit, the price in which the order should be bought can be mentioned
along with stop loss and take profit. The conditions can be:

 When the current market price hits the support

 When there is an uptrend from support
 When there are any chances that trend will decrease buy limit can be made

Sell Limit

In sell limit, the price in which the order should be sold can be mentioned along with
stop loss and take profit. The conditions can be:

 When the current market price hits the resistance

 When there is a downtrend from resistance
 When there are any chances that trend will increase sell limit can be made

Buy Stop

In order to reduce the loss, buy stop can be mentioned. The conditions can be:

 When the current market price breaks the resistance in uptrend

 When it hits on the resistance, buy stop can be made

Sell Stop

In order to reduce the loss, sell stop can be mentioned. The conditions can be:

 When the current market price breaks the resistance in downtrend

 When it hits on the resistance, buy stop can be made

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 CHAPTER V - LEARNINGS AND APPLICATION

5.1 Internship Learnings

It is very useful in learning the basic concepts of technical analysis for both FOREX and
Indian market. As per the basic knowledge of concepts and indicators the application part has
been done by analyzing currency AUD/USD in terms of technical analysis.

5.2 Application

As this project is based on the technical analysis, the charts of the currency AUD/USD
has been taken. AUD/USD charts were analysed in the month of june. The charts are taken from
the website “investing.com”. This analysis includes five year data from 2014 to 2019 for
indicators and from 2004 for patterns. The charts are in terms of monthly and weekly
candlesticks.

5.2.1 Patterns

A. Bearish Pattern

The general pattern of bearish is a downtrend. As per the monthly analysis of AUDUSD
during July of 2014 and February of 2018, the bear period can be visualized and there is
consolidation between 2014 and 2018.

Figure 5.1 Bearish pattern of AUDUSD

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B. Bullish Pattern

The general pattern of bullish is an uptrend. As per the monthly analysis of AUDUSD
during the year 2014, 2016 and on June 2017, the bull period can be visualized.

Figure 5.2 Bullish pattern of AUDUSD

C. DOJI

As per the monthly analysis of AUDUSD for 5 years from 2014 to 2019, DOJI can be
seen only on March, 2019 with same opening and closing price.

Figure 5.3 DOJI - AUDUSD

25
I. Single Candlestick

A. Hammer

In weekly analysis, on 8.5.2017, 7.5.2018 and 31.12.2018, hammer can be seen with its
characteristics as it has appeared in downtrend followed by an uptrend. The respective
candlestick has the lower wick which is lengthier than upper wick.

Figure 5.4 Hammer pattern of AUDUSD

B. Hanging Man

In monthly analysis, June of 2008 candlestick shows a perfect Hanging man and can be
seen with its characteristics as it has appeared in uptrend followed by a downtrend. Nearly for
next five consecutive months there is a downtrend. The respective candlestick has the lower wick
which is lengthier than upper wick.

26
 Figure 5.5 Hanging man pattern of AUDUSD

C. Inverted Hammer

In weekly analysis, on 20.01.2014 06.10.2014, 29.12.2014 and 1.06.2015, Inverted

hammer can be seen with its characteristics as it has appeared in downtrend followed by an
uptrend. The respective candlestick has the upper wick which is lengthier than lower wick.

Figure 5.6 Inverted Hammer pattern of AUDUSD

27
D. Shooting Star

In monthly analysis, in February of 2004, January of 2013, June of 2015, and April of
2016, Shooting star can be seen with its characteristics as it has appeared in an uptrend followed
by a downtrend. The respective candlestick has the upper wick which is lengthier than lower
wick.

Figure 5.7 Shooting star pattern of AUDUSD

II. Double Candlesticks

A. Bullish Engulfing

In monthly analysis, in September and October of 2006, December (2007) and January
(2008), December (2016) and January (2017) and November and December of 2017, Bullish
engulfing can be seen with its characteristics as it has appeared in a downtrend followed by an
uptrend. The first candlestick is Bear and the second is a bull which gives an uptrend.

28
 Figure 5.8 Bullish engulfing pattern of AUDUSD

B. Bearish Engulfing

In monthly analysis, in October and November of 2007 and August and September of
2014, Bearish engulfing can be seen with its characteristics as it has appeared in an uptrend
followed by a downtrend. The first candlestick is a bull and the second is bear which gives a
downtrend.

Figure 5.9 Bearish engulfing pattern of AUDUSD

29
C. Bullish Harami

In monthly analysis, in January and February of 2014 and January and February of 2016,
Bullish harami can be seen with its characteristics as it has appeared in a downtrend followed by
a uptrend. The first candlestick is a bear and the second is bull which gives an uptrend.

Figure 5.10 Bullish harami pattern of AUDUSD

D. Bearish Harami

In monthly analysis, in October and November of 2011, Bearish harami can be seen with
its characteristics as it has appeared in an uptrend followed by a downtrend. The first candlestick
is a bull and the second is bear which gives a downtrend.

Figure 5.11 Bearish harami pattern of AUDUSD

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III. Three Candlesticks

A. Morning Star

In monthly analysis, in January, February, March of 2009; January, February, March of

2010; July, August, September of 2013, August, September, October of 2015 and November,
December of 2016, January of 2017, Morning star can be seen with its characteristics as it has
appeared in a downtrend followed by an uptrend. The first candlestick is a bear and the third is
bull which gives an uptrend. In 2009 and 2010 observation, the second candlestick is a bull and
in 2013, 2015 and 2016-2017 observation, the second candlestick is a bear.

Figure 5.12 Morning pattern of AUDUSD

B. Evening Star

In weekly analysis, in second, third and fourth week of April, 2016 and first, second and
third week of April, 2019, Evening star can be seen with its characteristics as it has appeared in
an uptrend followed by a downtrend. The first candlestick is a bull and the third is bear which
gives a downtrend. In 2016 observation, the second candlestick is a bull and in 2019 observation,
the second candlestick is a bear.

31
 Figure 5.13 Evening star pattern of AUDUSD

5.2.2 Indicators

A. Relative Strength Index

The (30) relative strength index was taken for one month candle chart comprising five
year datas. 30 represents the average value of 30 candles.

 The Relative strength index indicates 42.6409. RSI tells about the information of
buyers and sellers. 42.6409 indicate that the candle is between 30 and 50 zone as
overall bearish region contains more Sellers. This in turn represents that the price will
be increased by the sellers irrespective of the bidding price. This can be assumed that
the price is going to be increase by the successive June candlestick.
 In April 2013, RSI is 54.9437. It is in buyer’s strength region. So the bidding price is
stronger than the selling price. Thus the price is lowered for nearly five successive
months.

32
 Figure 5.14 Relative Strength Index of AUDUSD

B. Bollinger Band

The (30, 2) bollinger bond was taken for one month candle chart comprising five year
datas. This was taken for 30 candles as average. The middle line seperates as two bonds. The
middle line is in the price at 0.7468, the upper line is in the price at 0.8091 and the lower line is
in the price at 0.6845.

 The current may candle is very near to the lower line which is the over sold region.
The candle is also near to the support line which indirectly tells that price can be
increase in the month of june.
 From 2016 to june of 2017, the price is prevailing along the middle of bollinger band
which has been inferred as a consolidation period in the five year period
 In july 2017, the candle touched the upper line and there happens a reversal for nearly
next four consecutive months

33
 Figure 5.15 Bollinger band of AUDUSD

C. Moving Average

The (5,15) moving average was taken for one month candle chart comprising five year
datas. The moving average 5 is in the price of 0.7035 and 15 is in the price of 0.7217 at the time
of analysis. And the price was 0.665 at the date (03.06.2019) of moving average analysis. The
period of moving average comprises 30 candles at closing prices.

 Lower Moving average is very close to the june candle stick which implies that there is
no reversal. So this can be analysed that the june price will be increased as it is already in
bullish mode when compared to may month candle
 At the time of september 2014, the lower moving average crossed the upper moving
average in down trend which meant that the price will be decreased untill the lower
crosses the upper moving average in up trend as that happened in may, 2016

34
 Figure 5.16 Moving Average of AUDUSD

D. Average Directional Index

The (30, 14) Average directional index was taken for one month candle chart comprising
five year datas. 30 represents the average representation of 30 candle sticks and 14 represents
directional movement index of average 14 candles. The ADX shows as 21.6007 at the current
market price.

 As ADX shows the strength of the market, here 21.6007 – the market is neither strong
nor weak.
 On February 2016, the ADX is about 42.3520 – represents the market is very strong
and fluctuating.
 On July 2018, the ADX is about 16.5385 – represents the market is very weak.

35
 Figure 5.17 Average Directional Index of AUDUSD

E. Resistance and Support

The analysis comprises five-year data of monthly candle. The support and resistance of
the AUDUSD near the current market price is 0.6870 and 0.7161 respectively. As the price is
very near to the support and it is assumed that the June 2019 price will have a slight increase
from May month price.

36
Figure 5.18 Resistance and support – AUDUSD

37
5.2.3 Inferences of June, 2019 Price

Indicator Criteria For Increase Range Inference

In Price
Relative 30 – 40 42.6409 June price may increase
Strength Index
Bollinger Price should be at Mid line - 0.7468 The price was at 0.6990
Band lower band line Upper line - (near lower band). So June
0.8091 price may increase.
Lower line -
0.6845
Moving Lower Moving average 5 MA - 0.7035 The current price is at 0.6990
Average should be very close to 15 MA - 0.7217 which is near to 5 MA. So
the candle stick there will be no reversal.
Therefore the price may
keep on increasing.
Average More than 50 – Strong 21.6007 at the The market is neither strong
directional 40 to 30 – Weak current market nor weak at the current price.
Index Less than 30 – price Therefore market will be in
consolidation consolidation
Resistance and If price hits the Support - 0.6870 The price is at 0.699 (near
Support support, price will Resistance - support). Thus, Price may or
increase 0.7161 may not increase.

Table 5.1 June (2019) price analysis

In May the closing price was 0.6939 and the June closing price is 0.7020. Thus
the June price have been increased when compared to May and has been showed in the following
image:

Figure 5.19 June price candlestick

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 CHAPTER VI - SUMMARY

6.1 Summary

This project mainly deals with the learning part which comprises the technical analysis of
FOREX. The objective has been achieved by analyzing AUD/USD by using all the patterns and
indicators. Apart from concepts, few strategies were mentioned in the report. With the help of
charts from the website “Investing.com”, all the concepts have been applied and thereby
identified the condition of the AUD/USD market in the month of June,2019. This project tells
about the entry and exit points, pending order and the market strength predictions. The
AUD/USD currency has been analysed using patterns like single candlestick, double candlesticks
and three candlesticks for five years from June,2014 to June, 2019. The analysis includes
monthly candlestick. The June,2019 price of AUD/USD has also been predicted with the help of
indicators like Relative strength index (RSI), Bollinger band, Moving average, Average
directional index, Resistance and support.

6.2 Conclusion

Patterns are identified from year 2004 and the indicators are used to predict the
June month market price as whether price will increase or decrease. It has been observed in the
month of June and all the indicators indicated that the price of June will be increased when
compared to the May price. At the end of June, the price have been increased from 0.6939 to
0.7020 and thus it has been increased as per the analysis. It has also been verified in the month of
July, as the June candle has been ended with an increase in price when compared to may.

6.3 Scope of Further Study

This study was done by analyzing AUD/USD currency with the help of all the indicators
and patterns. This can be further compared with other currencies. Fundamentals can also be
analyzed to have an exact prediction of AUD/USD.

39
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