Indian Commodities Trading

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INDIAN COMMODITIES TRADING CONCEPT

BYESHWAR REDDY [email protected]

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OVERVIEW

A commodity is a normal physical product used by every one during the course of their lives or metals that are used in production or as a traditional store of wealth and a hedge against inflation.

Commodity markets– where all raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

Commodities trading– Another form of investing in commodity products. It is similar to stock trading but instead of buying and selling shares of companies, Investor buys and sells commodity Products. Like Silver Gold Crude etc to make a profit from the variable prices in the exchange or market.

MCX – Multi Commodity Exchange of India Ltd is a state-of-the-art electronic commodity futures exchange. MCX was established in 2003 and based in Mumbai. It is the world’s sixth largest commodity trading exchange.

MCX Decides the Minimum Margin Amount to trade in each script.

Choose Brokers – Many already established equity brokers have sought membership with MCX.

Scripts in Commodities to TradeGold Silver Crude Oil Natural Gas Aluminium Copper Nickel Lead and Zinc

INDIAN COMMODITIES TRADING

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Many investors are unhappy with the performance of investment advisors and funds in the past couple of years and want to make their own trading decisions, using the analytic tools and the advice they have accumulated. We will show you the reliable trading tools, together with the trading rules to apply them to real-time trading.

Many investment strategies have been presented in books, market letters, and other media. We describe those tools that appear to work best, and we integrate them into a manageable and understandable trading strategy. Combining different strategies correctly can improve every investor’s chances of success under different market conditions. Most importantly, we concentrate on strategies that every experienced investor can easily understand and execute with SIMPLE MOVING AVERAGE.

Money is not made only by finding good entry points in different stocks, stock index futures, financial futures, or commodities. Making money is a strategic game, where it is important to work with stop-loss and profit targets. Traders make money through systematic investing. Then they must apply the same concepts to different products to gain the benefits of diversification.

Being well diversified with a systematic trading approach means that traders are unlikely to make as much money as they would if they put all of their investment money in one hugely successful product. But it makes the investment safer. Millions of investors made and lost a fortune by betting on high-tech companies. Although they bought correctly, they did not know when to sell. We would help you to avoid ever making that kind of mistake again.

The market price of a stock at any exchange never represents the company’s fair value. The stock instead is trading either above or below that valuation. Over the past couple of years, the potential discrepancy between market capitalization and fair value became painfully obvious to investors. Supported by analysts’ unrealistic price forecasts,


TRADING PSYCHOLOGY AND INVESTOR BEHAVIOR

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Many high-tech stocks reached untenable high prices and then, in some instances, became worthless because there was no real value behind these companies. In general, the market price fluctuates higher or lower around the fair value, depending how the market sentiment values the company.

Know Yourself:- If you start sweating when you watch the price swings of a product you have invested in, you either have the wrong trading concept, are in the wrong products, or your positions are too big.

Put Your Ego Aside:- The biggest losses happen after investors make their first big profits.If you accumulate profits with a proven, tested investment strategy, you can pride yourself on its success. However, if you make profits without an investment strategy, you may lose not only all your profit its but your total investment. Unexpected price moves do not have to mean big losses; they occur because investors work with the wrong trading concept.

Hoping and Praying Do Not Guarantee Success:- Many traders keep repeating the same mistake: They take small profits and let the losses run. The main reason to work systematically with an investment concept is to get the best average performance. This requires placing a stop-loss with every trading position and calculating the profit target when opening a position.Hoping that losses will become profits by waiting a “little bit longer” is gambling. It might be appropriate once in a while, but in the long run, it ruins every account.

Investors Must Learn to Live with Losses:- It is easy to enjoy profits, but everyone hates losses. A market price that drops below the entry price is not the only reason for a loss. If a position with a 100 percent profit is liquidated at the entry price, this is also a big loss in the account, although it may not seem as damaging.

Never Double Your Losses:- Dollar-cost averaging is one of the best strategies for investors if they execute it systematically as part of a long-term strategy. Almost all huge bankruptcies in trading companies worldwide happened because they doubled up losing positions. Hoping to recover losses through additional leverage never works unless someone is really lucky.

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Know Your Pain Level:- Investors create their biggest problems when they change their investment strategy without sufficient reason. The trouble begins when traders jump from one trading strategy to another to follow the short term sentiment, mainly because a product seems to have changed. Each investment strategy has its advantages and disadvantages. Someone who has expertise in picking stocks should continue to use this approach, despite the risk of big draw downs. A perfect trading concept does not exist, unless someone has discovered a niche product and keeps quiet. At the same moment that this niche market becomes common knowledge, the profit potential disappears. Each investment strategy has a predetermined pain level that investorscan identify. It is important to know this pain level before executing an investment strategy

Diversify the Risk:- No matter how promising the future of a product may seem, diversifythe risk. Many traders profitably trade the same product every day and are especially successful in intraday trading. But these traders are disciplined and have specific product knowledge that is not available to most people. In general, diversifying the risk with a systematic trading approach will result in a much more stable equity curve than investing in a single product.

Making Money by Trading Is Hard Labor:- Many people believe that that it is easy to make money by investing in stocks, bonds, stock index futures, or commodities. The opposite is true. Investors who show quick profits through trading either have inside information or are remarkably lucky. Average investors have neither of these advantages. All traders must develop a personal profile of risk preference and find a systematic trading style that fits the profile. Then they have to execute it. Months or years of systematic trading may be necessary before real-time trading results confirm that the trading concept works.

Intuition versus Execution of a Tested Trading Concept:- All of the information that comes over the tickers, from newsletters, and through the Internet is already old when we receive it. There will always be someone with faster access who can take advantage of that information. Speculating with this “old” information is dangerous. Trading concepts that have been tested and have good historical track records on paper provide valid information only if the advisor is willing to share how the trading concept works. Real-time trading records are only reliable if market behavior does not change. Many of the successful fund managers in the 1980s did less well in the 1990s because the market patterns were very different. Investors must be highly skilled to identify trading concepts that did not perform well in the past but will perform well in the future.

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The Importance of a Trading Plan:-The secret of success on the exchanges is not to make money fast, but to make it consistently. One of the most difficult accomplishments for traders is to create a portfolio that builds up equity over the long term, independently of market conditions. To reach this goal, it is essential to work with a reliable investment strategy and to guard against being greedy.

Feel Comfortable with Your Trading Strategy:- Successful traders begin the morning with a trading concept that they can use comfortably for executing trading signals throughout the day, no matter what the markets are doing. Feel good about your trading strategy as long as the real-time trading results are in line with the historical test results. If the maximum drawdown gets bigger than the drawdown of the historical test results, reevaluate the trading concept.

Nothing Is More Important than Discipline:- Discipline is always the most important attribute of successful traders. Many traders fail or have limited success because they cannot control their emotions and execute their established trading strategy in any given market situation.

Value of Available Trading Concepts:- Many worthwhile trading concepts are available. But none of them will always make money. An effective trading concept does not have to be difficult, but it must be executable. The trader has to believe in it and be willing to trade it even after a string of losses

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Making money with a systematic approach requires obeying the following rules


A systematic trading approach, tested on historical data, should be executed with precision and accuracy (if possible, a computer should generate the signals).

Although we concentrate on pattern recognition, candlesticks and Fibonacci ratios, other tested strategies should work as well.

The portfolio should have 5 to 10 products that are all analyzed using the same trading approach.

Long and short signals should be allowed.

Each position should be protected with a stop-loss.

The profit target should be known once the position is entered.

Each product should have a historically good trading range.

Each trading strategy should perform in real-time trading according to the philosophy behind the trading concept. For example, a long and f lat strategy cannot make money in bear market conditions, but it should make money in bull markets.

Candlesticks, Fibonacci, and Chart Pattern Tools briefly set forth the psychology and philosophy of successful trading.

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UNDERSTANDING OF MCX

The minimum investment amount is approximately Rs. 10,000. It varies for different commodities.

For example:- If you want to trade in Silver (5kg), you need approximately Rs. 15,000/- and for Gold (10gm) you need Rs. 12,000/-.

Calculation :- MCX decides the Margin Amount for each contract with previous day’s ClosureFor example if Silver Mega Dec Contract has closed at 65000/Kg then MCX Decides the margin which would vary between 5% to 8%.

Silver Mega Dec Contract is 65000 Lot size for mega silver decided by MCX is 30Kg We just need to multiple the cost of one kg Silver which is at 65000 with lot size which is 30KG that gives us 19,50000. ideally we need so much of amount to trade in 30kg of Silver but MCX gives us the liberty to trade in 30Kg of silver with an Margin amount of 97500 only which is 5% of the value of the trade or turn over, Hence you need to have 97500 in your account to trade the Silver mega lot. It is always advised to have + 10-20K as a back up in the account due to volatility in the market.

This is applied to all the scripts in commodities for different lot sizes.

Silver has Mega ,Mini and Micro Lot which is 30kg , 5kg and 1KG

Each lot is of different size or Quantity.


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Commodity Trade Example

Example:- Mini Silver Lot Size - 5Kg Previous Day’s Closure – Rs 64150/kg Calculation

64150X5 = Rs 320750/- (To trade in 5kg of Silver ideally we should have three lakh twenty thousand and seven hundred and fifty rupees)

MCX Decides the Margin Amount to Trade in 5kg of silver and the amount would be 5% of the total price that is .

= 5% of 320750 = 16037.50 Rs.

Is the amount required to trade in 5kg of Silver on the exchange.

Commodities is nothing but trading in future Contracts which has an expiry in the market , that means you are buying future silver and predicting the price of silver might go high or low.

Contract is the commodity script you trading.Expiry is the date when the contract gets expired. Note:- For each contract you have expiry date hence you need to close your position on or before the expiry dates or else your position will be squared of by the system automatically on the expiry date of the contract.


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MYTH IN TRADING:-

When ever we talk about trading 90% of the population always talk of buying and then selling the script, just observe this when ever we ask what is trading ever one tells its buying and selling of scripts, is it always a BUY and then SELL or we can SELL and then BUY back, is this possible in the market. Yes it is possible in the market and majority people do not know this. SELL at higher price and BUY back at lower price

Then trading is very simple any common man can trade and make huge profits if this is the trick of the trade then why 90% of the population loosing money in the market and only the 10% of the population is making huge profit and why these 10% of the population does not get exposed in the market because of one SIMPLE REASON that is systematic Trading and keeping them self updated with the current market Global trends as simple as that and 90% of the population does not have the patience to go and look at the global trend or not aware of these trends.

Two possible things either they are not aware of the Market news or they just want to do Gambling and guess the market trend and 90% of the population depends on the tips given by the advisory firms who claim that they and there research teams are best and working very hard to give out the profits what research they do nothing they just refer inventory report which is available on the websites and give out the tips to you guys and once the person subscribes why does not he go back to the same advisory team for future tips its all about attracting money from the investor


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SAFE TRADING CONCEPT:-

People are fine to deposit the money in the banks or go for some investment concept WHY ?

Very Simple answer because its safe and secured place to keep money which can give you 6% - 8% returns on

your investment . But do you know the concept of you depositing the money in the Bank and what does the bank do

with the amount if they just keep that money ideal would not fetch them any returns or interest..Simple they invest in

the market the concept is you giving out loans to the bank and the bank in return is paying a standard amount of 6-

8% as rate of interest and just do the vice-versa if you want to borrow the money from the bank or bank has given

you the credit card what is the rate of interest you guys end up paying it is either floating or flat it varies from 14% to

18% but if you lend the money to the bank they would pay you half the price of it.

When you have the opportunity of taking out 2%-4% on monthly basis on your investment with out any risk then why

not to utilized the concept of trading and trading into future commodities .

http://www.youtube.com/watch?v=lsmbWBpnCNk&feature=related

Government investment SLABS on your investment:- • Banks – 6% • Fixed Deposit – 8% • PPF – 10% 3 TO 5 years• NSC – 10% 3 TO 5 years


http://www.youtube.com/watch?v=lsmbWBpnCNk&feature=related

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ELSS VS PPF

Public Provident Fund (PPF) is a statutory scheme of the Central Government of India. Deposits in PPF qualify for rebate under section 80-C of Income Tax Act. The interest on deposits is totally tax free.

ELSS VS NSCNational Savings Certificate (NSC) is a certificate issued by Department of post, It is a long term safe savings option for the investor. The scheme combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961.

BASIS PPF ELSS

Lock in period 15yrs 3yrs

Tax Benefit u/s 80c (per yr) Rs 70000 Rs 120000

Risk level Low High

Returns 8% Variable (15%-30%)

Interest receipt On maturity Depends on performance

BASIS NSC ELSS


Min. investment Rs 100 Rs 500

Tax Benefit u/s 80c (per yr) Rs 120000 Rs 120000

Risk level Low High


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ELSS VS ULIPULIP or Unit Linked Insurance Plan is primarily an insurance product as is evident from its name itself. It offers you the option to invest your money in debt, equity or mixture of debt and equity funds.

FD VS ELSS

Tax-saving fixed deposits are conventional fixed deposits offered by banks

BASIS ULIP ELSS


Charges High(30-35% ) Low(2-2.5%)

Tax benefits Rs 120000 RS 120000

BASIS FD ELSS


Interest/ Dividend Receipts On Maturity Depends on performance

Minimum Investment Rs 100 Rs 500

Offered by Banks Mutual fund companies

Returns 7%-9% p.a 15%- 30%


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LETS BEGIN THE TRADE IN COMMODITIES

TRADING TERMINAL

When we sell the future month contract at 67000 future contract does not trade actively as the volumes are always low, if it trades upwards you would never be at loss as the volumes are less and the current buy contract is covering your profit . ( Simple moving average system)

When we buy the Current month contract at 65000/- and keep a target of 65500 that is 500 points difference if this particular contract falls also you would not be at loss as your future contract is covering your loss of your present contract ( Simple moving average system)

0.02%Contract Expiry Margin Amt Closing Amt LOT Size Qty Qty Size Buy Position Buy Amt Sell Position Sell Amt Profit & Loss Buy Brokerage

Silver 5-Dec 96090 64060 30 1 30 64120 1923600.0000 64300 1929000.0000 5400.0000 384.7200Silver 5-Mar 98674.5 65783 30 1 30 63298 1898940.0000 65307 1959210.0000 60270.0000 379.7880Silver 4-May 100710 67140 30 1 30 63298 1898940.0000 62847 1885410.0000 -13530.0000 379.7880

SilverM 30-Nov 16018.5 64074 5 1 5 62847 314235.0000 63298 316490.0000 2255.0000 62.8470SilverM 28-Feb 16451.5 65806 5 1 5 65850 329250.0000 65950 329750.0000 500.0000 65.8500SilverM 30-Apr 16817.5 67270 5 1 5 67890 339450.0000 67980 339900.0000 450.0000 67.8900

Contract Expiry Margin Amt Closing Amt LOT Size Qty Qty Size Buy Position Buy Amt Sell Position Sell Amt Profit & Loss Buy BrokerageGold 5-Oct 127864 31966 100 1 100 31966 3196600.0000 32350 3235000.0000 38400.0000 639.3200Gold 5-Dec 129356 32339 100 1 100 31966 3196600.0000 32350 3235000.0000 38400.0000 639.3200Gold 5-Feb 130808 32702 100 1 100 31966 3196600.0000 32350 3235000.0000 38400.0000 639.3200

Contract Expiry Margin Amt Closing Amt LOT Size Qty Qty Size Buy Position Buy Amt Sell Position Sell Amt Profit & Loss Buy BrokerageCrude oil 19-Sep 26530 5306 100 1 100 5250 525000.0000 5350 535000.0000 10000.0000 105.0000Crude oil 19-Oct 26705 5341 100 1 100 5433 543300.0000 5440 544000.0000 700.0000 108.6600Crude oil 15-Nov 26890 5378 100 1 100 0.0000 0.0000 0.0000 0.0000Crude oil 18-Dec 27130 5426 100 1 100 0.0000 0.0000 0.0000 0.0000Crude oil 21-Jan 27310 5462 100 1 100 0.0000 0.0000 0.0000 0.0000Crude oil 19-Feb 27505 5501 100 1 100 0.0000 0.0000 0.0000 0.0000

Fill up the coloumn which are in yellow


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If you want to Trade in Silver Dec Contract and the lot size is 30kg ( Silver mega) Previous closing is 64000/-

64000X30KG= 1920000/- is the Amount or turn over one side 1920000X5%=96000 ( MCX Margin to Trade in 30Kg) 0.003% = Brokerage on Turn Over of one Crore is 3000rs in this case 0.001436% - Service Tax = 0.00101 – Stamp Duty = 0.001515 – Transaction charge on your turn over

Turn over of your one trade is

Buy @ 64000 so your turn over of buying silver is at 1920000 Sell @ 64300 so your turn over of selling silver is at 1929000

Your Turn over is BUY+SELL that is 1920000+1929000= 3849000

Your Profit for the transaction is (Sell – Buy) that is ( 1929000-1920000) = 9000Rs/-

Now your brokerage is calculated on the Turn over which is for buy 1920000 – Rs 576

for Sell 1929000- Rs 578.70

Total Brokerage is 576+578.70= 1154.70

Stamp Duty – 38.8749, Service Tax – 55.27 &Transaction Charges- 58.31

Total Cost would be – 1154.70+38.87+55.27+58.31= 1307.15 your profit is 9000-1307.15 = 7692.85

PROFIT AND LOSS CALCULATION


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If you want to Trade in Silver Feb Contract and the lot size is 30kg ( Silver mega) Previous closing is 67000/-

67000X30KG= 2010000/- is the Amount or turn over one side 2010000X5%=100500 ( MCX Margin to Trade in 30Kg) 0.03% = Brokerage on Turn Over of one Corer is 3000rs in this case .001436% - Service Tax= .00101 – Stamp Duty= .001515 – Transaction charge on your turn over


SELL@ 67000 so your turn over of buying silver is at 2010000 BUY @ 67150 so your turn over of selling silver is at 2014500 Your Turn over is BUY+SELL that is 1920000+1929000= 4024500 Your Profit for the transaction is (Sell – Buy) that is ( 2010000-2014500) = 4500Rs/- Now your brokerage is calculated on the Turn over which is for buy 2010000 – Rs 603.00

for Sell 1929000- Rs 604.3500

Total Brokerage is 603.00+604.35= 1207.35

Stamp Duty – 40.64 Service Tax – 57.79 Transaction Charges- 60.97




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If you want to Trade in Crude Dec Contract and the lot size is 100 Barrel ( previous closing is 5350/-

5350X100= 535000/- is the Amount or turn over one side 535000X5%=26750 ( MCX Margin to Trade in 100 barrels) 0.03% = Brokerage on Turn Over of one Corer is 3000rs in this case .001436% - Service Tax , .00101 – Stamp Duty, .001515 – Transaction charge on your turn over


Buy@ 5350 so your turn over of buying silver is at 535000 Sell @ 5375 so your turn over of selling silver is at 537500 Your Turn over is BUY+SELL that is 53500+537500= 1072500 Your Profit for the transaction is (Sell – Buy) that is ( 537500-535000) = 2500Rs/-

Now your brokerage is calculated on the Turn over which is for buy 535000 – Rs 160.50

for Sell 537500- Rs 161.25

Total Brokerage is 160.50+161.25= 321.75

Stamp Duty – 10.83 Service Tax – 15.40 Transaction Charges- 16.24




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INVESTMENT SLABS & RETURN ON YOUR INVESTMENT

From To ROI/Annum Ser Charge

100000 300000 20% 12%

300000 500000 25% 12%

600000 900000 30% 12%

900000 1500000 40% 12%

1500000 Above 50% 12%


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DOCUMENTS REQUIRED TO OPEN AN DMAT ACCOUNT

• PAN CARD

• Address Proof

• 6 Months Bank Statement along with a cancelled chq leaf.

Note :- Brokers will charge Rs 300-500 for opening the Dmat Account.

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Tools For Trading Candlestick Trading – The Language of Japanese Candlesticks


Candlesticks are one of the most important tools we have in the forex and stock market technical analysis. The information that the candlesticks give us are the best and most accurate. If you like to become a good trader and you like to have successful and profitable trades, it is highly recommended to learn to read the candlesticks’ signals.

What are the Japanese Candlesticks?

Candlesticks are the oldest form of technical analysis in the world. Japanese Candlesticks were invented by a Japanese rice trader, Sakata, in 17th century. He spent about ten years of his life in researching and analyzing of the effect of weather, psychology of buyers and sellers and many different conditions on the rice price. Then he made 100 successful trades and retired a rich man and wrote two books about technical analysis.I highlighted the “psychology of buyers and sellers” because candlesticks are the indicators of the market psychology. This is the first and most important thing you have to know about the candlesticks. Price volatility is the result of nothing but the behavior of the buyers (Bulls) and sellers (Bears).When there is more buying than selling, the price goes up and visa versa.Candlesticks are the indicators that reflect the feelings (fear and greed) of the buyers and sellers. Candlesticks has their own language which is very easy to learn. If you learn their language, you will see that they really talk to you and tell you what will happen in the future.

http://www.forexoma.com/how-to-use-technical-analysis-in-forex-and-stock-trading/


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Candlesticks are the only real time indicators that we have and when you combine them with other useful indicators like Bollinger Bands, they will become the best trading tools. All other indicators like Stochastic, MACD and RSI are delayed and produce a lot of false signals. Ignoring the candlesticks and trading based on these indicators is like driving with closed eyes and just by listening to the directions that someone else gives you. It is clear that he can not give you the directions “on time”. Your reflections will not be on time too and you will be delayed which can be too dangerous.

Candlesticks, candlestick trading and the related technical analysis were introduced to the western countries in 1985 and became so popular.Candlestick is basically a rectangle that gives 4 different information in a special time frame. If you use the daily time frame, for each day we will have one candlestick and if you use a 5 minutes time frame, for each 5 minutes you will have a candlestick and so on.

Each candlestick includes 4 numbers:

Open price Close price High price Low price


http://www.forexoma.com/how-to-use-bollinger-bands-in-forex-and-stock-trading/

http://www.forexoma.com/how-to-use-macd-or-moving-average-convergence-divergence-in-forex-and-stock-trading/


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For example, in the one hour time frame, the open price is the price of the currency pair at the time that the candlestick is started. In the one hour time frame, it takes one hour for each candlestick to be formed completely. So let’s say when a candlestick is just started in the one hour chart, the price is 1.9825. This is the open price. The prices goes up and down during one hour and finally, when one hour is over, the price is 2.0080. This is the close price.

When the close price is higher than the open price, the candle is Bullish.

It means the price has gone up during the formation of the candlestick.

If the open price is higher than the close price, the formed candlestick is a Bearish candlestick. It means the price has gone down during the formation of the candlestick.

High price is the maximum price and low price is the minimum price during the formation of the candlesticks.

The shape and color of a candlestick may change several times during its formation and you have to wait for the candlestick to be formed completely and then read the candlestick signal and make your analysis and decision.


http://www.forexoma.com/currency-pairs-correlation-in-forex-market-cross-currency-pairs/

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Candlesticks have two main parts:

Body and

Shadows

Psychology of the market:

Candlestick trading means knowing the psychology of the market using the candlesticks shapes and colors. Candlesticks are the indicators of the market psychology. They show us if there is more buying than selling or there is more fear than greed in the market and visa versa. Using this information, you will be able to predict the direction of the price. You will learn about it here.


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Different shapes of the candlesticks:

Because of the price changes, candlesticks can have several different shapes. For example the open price and close price can be the same. Or the high price can be the same as the close price.

Typical candlesticks:

All of the four prices are different from each other. A typical candlestick can be Bullish or Bearish

2. Marubozu:

Marubozu means shaven. The candlesticks that have no shadow are called Marubozu.

What does Marubozu mean in the market?

In Bullish Marubozu, the open price is the same as the low price and the close price is thesame as the high price. Bullish Marubozu means that Bulls are so strong and didn’t let the Bears take the price down when the candlestick became completed. It means there is a lot of buying activity in the market. The longer the candlestick, the stronger the Bulls.In Bearish Marubozu, the open price is the same as the high price and the close price is the same as the low price. A Bearish Marubozu means that Bears are strong and there is a lot of sell activity in the market specially when the Bearish Marubozu is longer than the previous candlesticks.


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What does Marubozu it mean in general?

When you see a Bullish Marubozu, you should not take a short position because the Bulls are strong and the price can go higher.

When you see a Bearish Marubozu, you should not take a long position.

When you see a Bullish Marubozu at end of a downtrend, it is a reversal signal. You can just wait for the next candlestick and if it is Bullish too, you can take a long position.

When you see a Bearish Marubozu at end of an uptrend, it is a reversal signal. You can just wait for the next candlestick and if it is Bearish too, you can take a short position.

If you already have a long position and you see a Bearish Marubozu at the end of the uptrend, you should close your position and take your profit.

If you already have a short position and you see a Bullish Marubozu at the end of the downtrend, you should close your position and take your profit. Of course we will talk about the candlesticks patterns and you will learn more about taking the right decision when you see different kinds of candlesticks but by now, just keep in mind that Bullish/Bearish Marubozu means the Bulls/Bears are strong.


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Doji means unskillfully. These kinds of candlesticks are called Doji or unskillfully because they don’t have a body. Why? When the open price and close price are the same we will have a Doji.

So Doji candlesticks have no color and so they are neither Bullish nor Bearish. What does it mean? It means Both Bulls and Bears have the same power and are matched and the price doesn’t know where to go. It doesn’t know if it goes up or down because Bulls are not able to increase the price and Bears are not able to decrease it.

So Doji candlesticks are indecision and uncertainty signals.All kinds of Doji candlesticks need confirmation. I will tell you what the confirmation means.There are different types of Doji candlesticks. The most important one is called Rickshaw man. In Rickshaw man the cross bar is roughly central.

Rickshaw man is a strong indecision signal. So you when you see it at the top of an uptrend, it means the price can go higher, or go down or becomes range.Another kind of Doji is called Gravestone:

DOJI


http://www.forexoma.com/doji-candlestick-doji-star-how-to-trade-using-doji-candlestick-and-bollinger-bands/








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This kind of Doji also means indecision and when it is seen at the top of an uptrend it means the prices wants to bounce down.At the bottom of the market sometimes you see the Inverted Gravestone: Inverted Gravestone is also known as Dragonfly.

Of course it doesn’t mean that inverted gravestone or gravestone can not be seen at the top or bottom of the market. In both cases they signal indecision.

Doji can be seen in some other different shapes too

Sometimes Doji has a small body:





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What should you do when you see a Doji?

As I said, Doji means indecision and uncertainty. When it is seen at the top of an uptrend or at the bottom of a downtrend, it means the price is uncertain to go up or down or sideways. When you see a Doji, if you already have a position, you have to take your profit and if you don’t have any position, you have to wait for the confirmation to choose a direction and enter to a trade.

What do I mean by confirmation? The next candle sticks can work as a confirmation. For example when you see a Gravestone at the top of an uptrend, you should get ready to go short but first you have to wait for the next candlestick or even next two candlesticks. If they are Bearish, it means the price has changed the direction and you can go short.

Please note that Doji candlesticks that have longer shadows, are stronger.

As you see the Doji is confirmed by the next candlestick and the price went down.







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Hammer and Hanging Man:Hammer is kind of candlestick that can be seen at the bottom of a downtrend. Hammer has no or a very small upper shadow. The hammer candlestick which is seen at the top of an uptrend is called Hanging Man.

Hammer and Hanging Man have three identifying features:

The body is in the upper third of the price range.The lower shadow is twice of the length of the body.They have no or a very short upper shadow.

Like Doji, Hammer and Hanging man signal indecision and uncertainty and need confirmation.



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Shooting Star

It is an inverted hammer at the top of the uptrend. Its color can be Bullish or Bearish. A Shooting Star at thebottom of a downtrend, is called Inverted Hammer. Like Doji and Hammer, Shooting Star and inverted Hammer need confirmation.

A gap between the Shooting Start or Inverted Hammer and the next candlestick is one of the confirmations. A big Bearish candlestick after the Shooting Start is another confirmation. Generally, confirmation is something that confirms that the price has changed the direction.



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Combination of Candle Sticks

Candlesticks are important signals individually. However combination of candlesticks can also generate very strong reversal signals.

High Wave

A group of candlesticks that have small bodies and long shadows are called High Wave. High Wave is a very strong reversal signal at the top of an uptrend or bottom of a downtrend.


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Engulfing Pattern

This pattern is a very strong reversal signal at the end of a trends. Engulfing pattern is formed by two candlesticks with different colors. The body of the second candlestick should completely engulf the first one. The shadows may also be engulfed but it is not necessary. The first candlestick can also be a Doji. Engulfing pattern is stronger when the first candlestick has a small and the second candlestick has a big body. Also when the second candlestick engulfs more than one candlestick, the pattern is stronger.



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Dark Cloud CoverIt is a Bearish reversal signal that can be formed at the top of an uptrend by two candlesticks. The first one is Bullish and the second one is Bearish.

Dark Cloud Cover is formed when the second candlestick is started above the high price of the first candlestick but goes down and becomesfinished above the open price of the first candlestick.

Dark Cloud Cover can be considered as a stronger reversal signal when:

1.The closing price of the bearish candlestick is close to the opening price of the previous candlestick.

2Both candlesticks are shaven (they have no shadow) and the bearish candlestick is opened at the close of the bullish candle stick and is closed at the open of the bullish candlestick

3When the bearish candlestick is opened above a strong resistance and then goes down.


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Piercing LineA Dark Cloud Cover that happens at the bottom of a downtrend is know is as Piercing Line

When you see a Dark Cloud Cover at the top of an uptrend or a Piercing Line at the bottom of a downtrend you have to wait for the next candlestick.

If the next candlesticks after a Dark Cloud Cover is a Bullish candlestick that keeps on going up and goes higher than the high price of the second candlestick, then you should consider the Dark Cloud Cover as a continuation signal.

But if the next candlesticks after a Dark Cloud Cover is a Bearish candlestick that goes down and preferably lower than the close price of the second candlestick, then the Dark Cloud Cover you have is a reversal signal.

The same thing is correct about the Piercing Line:If the next candlesticks after a Piercing Line is a Bearish candlestick that goes down and goes lower than the close price of the second candlestick, then the Piercing Line you have is a continuation signal.

But if the next candlesticks after a Piercing Line is a Bullish candlestick that keeps on going up and preferably goes higher than the high price of the second candlestick in the Piercing Line, then the Piercing Line you have is a reversal signal.


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HaramiHarami means pregnant in Japanese.Harami pattern is formed by two candlesticks. One big (the mother) and one small (the baby). The bigger one covers the whole or at least the real body of the smaller one. Harami can be seen both at the top of an uptrend or at the bottom of a downtrend. The small candle can be formed any where along the length of the big candle but the important thing is that it should be covered by the big candlestick.

The more difference between the size of two candlesticks, the more effective and potent the signal is.

Like the Dark Cloud Cover, Piercing Line and Harami can work as reversal signals but they have to be confirmed by the next candlesticks. These patterns can not be known as reliable and strong reversal signals.

If you already have a position and you have some profit in your hands, when you see any of the above patterns, you have to close your trade or at least tighten your stop loss and wait for the market to go ahead.

If it changes the direction, you will be safe because you already collected your profit or your stop loss will protect your profit and if it keeps on moving to the same direction, you will make more profit.

When the small candlestick in Harami pattern is a Doji, the pattern is called Harami Cross. A long body candlestick followed by a Doji which is covered by the long candlestick should not be ignored at all:


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Morning and Evening Star and Abandoned Baby

Morning star becomes formed by three candlesticks. This pattern can be seen at the bottom of a downtrend. It is known as a strong reversal signal.

The first candlestick should be a Bearish candlestick with a considerable body.

The second candlestick is a small candlestick that is formed lower than the first one. This candlestick can be Bearish or Bullish. In fact Morning star is the second candlestick but we have to have the first and the second candlesticks for a Morning Star signal.

The third candlestick is a Bullish candlestick that is formed higher than the second one and its body covers a significant portion of the first candlestick.

This pattern is called Evening Star when formed at the top of an uptrend:


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The effectiveness and potency of the Morning Star and Evening Start patterns as reversal signals is dependent on some special factors that you have to considered:

The distance (gap) between the morning or evening star with the first and third candlesticks. The bigger gap, the stronger signal. The degree of the coverage of the first candlestick by the third one. The bigger coverage, the stronger signal. The bigger trading volume in the third candlestick than the first one.

Sometimes the Morning or Evening Star is a Doji candlesticks. Again in this case, the most important thing is the gap between the first and third candlestick and the Doji.

Sometimes, the Morning or Evening Star is a very small candlestick with small or no shadows. The gap is so big and even none of the candlesticks shadows cover any part of the Morning or Evening Star. This patterns is called Abandoned Baby which is a very strong reversal signal. Because of the high volatility, this pattern is very rare in the forex market and can only be seen in bigger time frames but it can be seen in the stock market in smaller time frames like one hour.

Abandoned baby can be seen both at the top of an uptrend or bottom of a downtrend.




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TweezersTweezers is made up of two candlesticks that are next or so close to each other. They have identical highs at the top of the market or identical lows at the bottom of the market. The Tweezers usually becomes formed by the candlesticks shadows but it can also be made by the bodies of the shaven candlesticks. The two candlesticks that form Tweezers can have small bodies like Doji and Hammer candlesticks.

Tweezers can not be considered as a strong reversal signals and it needs confirmation but you have to be careful when you see a Tweezers signal. You know what I mean by “be careful”.Tweezers that are formed right under resistance lines or above the support lines and also under or above the Fibonacci levels that act asresistance or support are important especially when they are made up of two Doji candlesticks. The longer the shadows, the more potent the Tweezers signal.It is also possible that you see a few or even several candlesticks between the two candlesticks that form the Tweezers pattern. Even in this case you should not ignore the Tweezers as a potential reversal signal.When there are several candlesticks between the two that make the Tweezers pattern, they may form Double Tops or Double Bottomspatterns that show the levels of resistance or support.



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http://www.forexoma.com/how-to-use-fibonacci-numbers-in-forex-and-stock-trading/






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Fibonacci Trading - How To Use Fibonacci in Forex Trading

Fibonacci trading methods: After reading this article, please also read another article that I have written about using Fibonacci in forex trading:More About Using Fibonacci in Forex Trading

Fibonacci trading is becoming more and more popular, because it works and market, Forex or stock, react to Fibonacci numbers and levels. Fibonacci is a sequence of numbers discovered by Leonardo Fibonacci, an Italian mathematician: 0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, 10946, 17711, 28657, 46368, 75025, 121393 …….

Fibonacci numbers are started by 0, followed by 1, and then the third number is calculated through adding 0+1 (the first and the second number). Then for getting the forth number (3), the second and third numbers should be added (1+2) and …….

It was easy so far, isn’t it?

Now if you measure the ratio of each number to the next one, you will have the Fibonacci Ratios that are the same numbers (levels) we use in our Forex or stock market technical analysis: 0.236, 0.382, 0.500, 0.618, 0.764 …….To use these numbers in technical analysis you don’t have to make any calculation and you don’t have to even memorize them because all the trading platforms let you draw the Fibonacci levels and they have everything ready to use.

The only thing you should know is how to use the Fibonacci levels in the technical analysis.Fibonacci trading means to know when and where market reverses to keeps on moving. The most important thing in Fibonacci trading is that the Fibonacci levels act as support and resistance. When the price goes up, they act as the resistance and visa versa. Also like ordinary supports and resistances, when a Fibonacci level is broken as a resistance, it can act as a support and to be retested. It is the same as when a Fibonacci level becomes broken as a support (it can act as a resistance then).


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http://www.forexoma.com/more-about-using-fibonacci-in-forex-trading/










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You may ask why Fibonacci levels work in forex and stock market? What is the relation between the price of the currencies and the Fibonacci numbers? The answer is “we don’t know”. The only thing we know is that Fibonacci numbers work in everything from the microscopic materials like DNA molecule to the distance between our eyes, ears, hands, even the distance of the planets in the solar system and the way they move in the space, even the distance and pathway of the stars in the universe and finally in the currencies’ prices and the way they move up and down. Fibonacci numbers can be found anywhere in the world. Why? You have to ask God !

Of course I don’t know why “Fibonacci numbers and why not any other number?” but I do know why the same numbers can be found in everything: The same numbers can be found in everything because everything is created by the same God.

I think you have already seen the below painting by Leonardo Da Vinci (he is another Italian scientist and physician). If you draw the Fibonacci levels on it (as I did) you will see how the Fibonacci numbers specially the 0.618 works. They say 0.618 ratio can be seen in everything in our body in the internal and external organs.


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Fibonacci trading is not complicated. How can we use the Fibonacci numbers in Forex trading? That’s the question.

By using the Fibonacci numbers in the charts, you can find more supports and resistances. It will be a big help to choose the right direction and avoid entering to a wrong trade.

To use the Fibonacci numbers in the charts, you have to find the top and the bottom of the previous trend. When the previous trend has been a downtrend, you draw the Fibonacci levels from top to the bottom and extend the lines in the way that they cover the next completing trend and when the previous trend has been an uptrend, you draw the Fibonacci levels from the bottom to the top and extend the lines in the way that they cover the next completing trend.

You have to wait for the trend to become completed: You can not draw the Fibonacci levels while the trend is not completed. When you can not find a completed trend in a time frame, you have to look for one in the smaller or bigger time frames in the same currency pair or stock.

For example at the below chart, I drew the Fibonacci levels from the beginning of an uptrend that was started on 16 Aug 2007 to the end of it that was on 23 Nov 2007. I drew the levels from the bottom to the top.Now lets see how the Fibonacci levels worked as support and resistance in the next trend.


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http://www.forexoma.com/currency-pairs-correlation-in-forex-market-cross-currency-pairs/



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Follow the red numbers on the chart:

The price that started to go down on 23 Nov 2007, touched the 23.60% level on 5 Dec 2007. This level worked as a support and so the price went up as soon as it touched the level but then went down to retest the 23.60% level.As you know, usually when the price can not break a support or resistance, it tries to retest them later and sometimes it can break them after retesting. So the price went up but tried to retest the 23.60% level eight days later on 14 Dec 2007 and succeeded to break the 23.60% level this time and so went down.

The price touched the 38.20% level on 17 Dec 2007 and tried to break it for five days but failed and so started to go up on 23 Dec 2007. It touched the 23.60% level when it was going up and could break it without any problem on 27 Dec 2007.

On 31 Dec 2007 it went down to test the 23.60% as a support. On 2 Jan 2008 it failed and went up.

Currently (17 Jan 2008) it is retesting the 23.60% level once again as a support and if this time it breaks the 23.60% level, it will go down and if not, it will go up.







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Let’s look at some other example. Follow the red numbers on the chart:

There was a big downtrend in the GBP/JPY that started on 22 July 2007 and ended on 17 Aug 2007. So I drew the Fibonacci levels from the top to the bottom (from 22 July 2007 to 17 Aug 2007).

While going up, the price touched the 23.60% level on 20 Aug 2007 and could break it easily but on the next day it went down to retest the 23.60% level as a support. It could not be broken and so the price went up.

The price didn’t show any reaction to the 38.20% level as a resistance and went up but was stopped by the 50% on 26 Aug 2007. From 26 Aug to 1 Oct 2007 the price went up and down between the 23.60% and 50% levels. During this period of time, the 38.20% level worked assupport and resistance several times and it seemed that the price was rotating around the 38.20% level. It made a consolidation around the 38.20% level.

The 50% was broken finally on 1 Oct 2007 and the price went up.

It had a hard time in breaking the 61.80%. It tried for ten days from 5 to 16 Oct 2007 to break the 61.80% level but failed and bounced down.

While going down, it passed through the 50% level without any problem but was stopped by the 38.20% level that acted as support on 22 Oct 2007. It went up on 23 Oct, tested the 50% level, went down on 24 Oct and then tested the 50% on 29 Oct and could break it up.

On 31 Oct 2007, it reached the 61.80% once again and tried for several days but failed again, went down and made a double top.It became completely disappointed about going up and retesting the 61.80% level because it went much lower after it failed to break the 61.80% level.







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INDIAN COMMODITIES TRADING On 9 Nov 2007 it broke the 38.20% level and made a consolidation around the 23.60% level. Like the 61.80%

level, the 23.60% level acted assupport and resistance several times and a consolidation was formed around it. As you know, consolidations including, triangles, wedges, pennants and channels are continuation patterns. It means the price will go to the same direction that it was used to go before the consolidation forms.

Finally it went down, broke the 0.00% level on 2 Jan 2008.



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What do you think now?

Can you ignore the Fibonacci numbers in your trades?

As you see the effect that they have on the market is not negligible and in fact is highly considerable. I know this question is formed in your mind that why they have such a big effect on the market. Why the prices become stopped sometimes for several days below or above the Fibonacci levels?

(Of course if you use the Fibonacci levels in the bigger time frames like weekly and monthly charts, you will see that sometimes the price becomes stopped by one of the Fibonacci levels for several weeks.)

The answer of this question has no effect on our trading. I mean whether you know the reason or not, you can use the Fibonacci levels in your trades. I know most of you don’t care about the answer but some of you are eager to know.

Well! If the Fibonacci numbers are used in the formation of our body, from our genes (DNA molecule) to our internal and external organs, So they are also effective in our behavior.

And the price of the market goes up and down because of the behavior of the traders: Buying and Selling >>> Bulls and BearsSo the market has to show reactions to the Fibonacci levels.


What time frame is better for using the Fibonacci levels?

It depends on your trading systemYou can use the Fibonacci levels in all time frames. When you use them in the bigger time frames like daily, the result will cover and will be applicable for the several next days, weeks and even months and when you use them in smaller time frames like 5 minutes, the result can be applicable only for few hours because the price will leave the Fibonacci level area very soon.

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You drew the Fibonacci Levels on your chart. What next?

Fibonacci trading is considering the Fibonacci levels as support and resistance levels and taking proper positions based on them. As I already explained, Fibonacci levels act as support and resistance.

So when the price is going up and you have already entered to a long position (you have bought), you should be careful when the price becomes close to one of the Fibonacci levels.

It is possible that it goes down and you lose the profit you had already made. So you have to move yourstop loss to the open price of the first candlestick that is touching the Fibonacci level or a little higher. It depends on the length of the candlestick.

Or simply if you have made enough profit, you can close your trade and wait for the price to break the Fibonacci levels or fail and go down. You can take a new position then.

It is the same as when the price is going down but in this case the Fibonacci levels act as resistance.

Also keep in your mind that when one of the Fibonacci levels is broken, the price usually returns to retest. If you get ready for all these possibilities, you will not be trapped.

You treat the Fibonacci levels like real supports and resistances. They really have no difference and sometimes they act even stronger.

If you have not understood what I have explained above or you have any question, please leave a comment and I will get back to you shortly.






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INDIAN COMMODITIES TRADING Websites to refer for online trading

Inventory Reports :- http://www.forexfactory.com/http://www.netdania.com/http://www.kitcosilver.com/

If you still need any further info or tips on it plz mail me on my mail id

[email protected] or add me on messenger

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