Project Report on COMPARATIVE STUDY ON SUCCESS RATE OF TWO TECHNICAL INDICATORS PERTAINING TO CRUDE OIL TRADING Project Report submitted by: D . SREEMANNARAYANA ROLL NO:13781E00C2 MBA STUDENT SVCET RVS NAGAR CHITTOOR.
1. Project Report on COMPARATIVE STUDY ON SUCCESS RATE OF TWO
TECHNICAL INDICATORS PERTAINING TO CRUDE OIL TRADING Project Report
submitted by: D . SREEMANNARAYANA ROLL NO:13781E00C2 MBA STUDENT
SVCET RVS NAGAR CHITTOOR.
2. SUBMITTED BY: - SUBMITTED TO GUIDE:- SRIMANNARAYANA
13781E00C2 MBA 4RD SEM DR . E . LOKANATHREDDY (VICE PRINCIPAL)
PROJECT CONCLUDED AT: BRANCH, CHENNAI. Submitted in partial
fulfillment for the Award of degree of Master of Business
Administration Academic Year 2013-2015
3. OBJECTIVES OF THE PROJECT To analyze the candlestick,
relative strength index operations on crude oil trading globally.
(Through MAITRACOMMODITIES PVT LTD). To make a subjective approach
on hammer, reverse hammer, Doji candlesticks with the respective
samples in global commodity market (mt4, mt5 softwares). To ensure
the success rate and failure rate of candlestick and relative
strength index at their appropriate points. To compute and compare
the RSI INDEX using formulae, candlestick values and processing. To
provide a precise summary and conclusion to crude oil trading in
commodity market
4. LIMITATIONS OF THE STUDY Time constraint is there for the
intraday study. The estimated results that are drawn are subject to
uncertainty. Hence , it does not give any guarantee for future
profits. Only few Commodities were studied through
Candlestick.
5. INTRODUCTION TO THE INDUSTRY
6. In India commodity markets have been in existence for
decades. However in 1975 the Government banned forward contracts on
commodities. Later in 2003 the Government of India again allowed
forward contracts in commodities. There have been over 20 exchanges
existing for commodities all over the country. In the mid-19th
century, grain markets were established and a central marketplace
was created for farmers to bring their commodities and sell them
either for immediate delivery (spot trading) or for forward
delivery. The latter contracts, forwards contracts, were the
fore-runners to today's futures There have been over 20 exchanges
existing for commodities all over the country. They are of national
level multi commodity exchanges. They are Multi Commodity Exchange
(MCX) National Commodities Derivatives Exchange (NCDEX) National
Multi Commodity Exchange (NMCE)
7. STRUCTURE OF COMMODITY MARKET Ministry of Consumer Affairs
FMC Commodity Exchanges National Exchanges MCX NCDEX NMCE Regional
Exchanges NBOT 20 Other Regional Exchanges SEBI (controls FMC)
8. INTRODUCTION TO
9. MCX offers futures trading in Agricultural Commodities,
Bullion, Ferrous & Non-ferrous metals, Pulses, Oils &
Oilseeds, Energy, Plantations, Spices and other soft commodities.
Multi Commodity Exchange (MCX) is an independent commodity exchange
based in India. It was established in 2003 and is based in Mumbai.
MCX is a demutualized nationwide electronic multi commodity futures
exchange set up by Financial Technologies with permanent
recognition from Government of India for facilitating online
trading, clearing & settlement operations for futures market
across the country. The exchange started operations in November
2003. MCX has also setup in joint venture the National Spot
Exchange a purely agricultural commodity exchange and National Bulk
Handling Corporation (NBHC) which provides bulk storage and
handling of agricultural products. MCX is India's No. 1 commodity
exchange with 84% Market share in 2008.
10. VISION: MCX envision a unified Indian commodity market that
is driven by market forces and continually provides a level
playfield for all stakeholders ranging from the primary producer to
the end-consumer; corrects historical aberrations in the system;
leverages technology to achieve exceptional efficiencies and
ultimately lead to a common world market. We also envision a brand
image for MCX that identifies it as the Exchange of Choice not only
by direct participants in the commodity ecosystem but also by the
general public. MISSION: MCX shall accomplish the above vision by
relentlessly endeavoring to enhance awareness and understanding of
exchange-enabled trade in commodity derivatives. The Exchange will
continue to minimize the adverse effects of price volatilities;
providing commodity ecosystem participants with neutral, secure and
transparent trade mechanisms; formulating quality parameters and
trade regulations in conjunction with the regulatory authority.
Moreover, it will continue to enforce a zero-tolerance policy
toward unethical trade practices-attempted or real-by any
participant/s; and invest in the all-round development of the
commodity ecosystem.
11. Board of directors BOARD OF DIRECTORS: Mr. Venkat Chary -
Chairman Mr. Jignesh Shah - Vice Chairman Mr. V. Hariharan - Non
Executive Director Mr. Joseph Massey - Non Executive Director Mr.
P. G. Kakodkar - Non Executive Director Mr. Paras Ajmera - Non
Executive Director Mr. C. M. Maniar - Independent Director Mr.
Shvetal S. Vakil - Independent Director Mr. Anupam Mishra -
Independent Director, FMC Nominee Mr. R. M. Premkumar - Independent
Director, FMC Nominee Prof. (Mr.) K. T. Chacko - Independent
Director, FMC Nominee Prof. (Ms.) Ashima Goyal - Independent
Director, FMC Nominee Mr. S. Balan - Independent Director, NABARD
Nominee Mr. B. Sriram - Independent Director, SBI Nomine Mr.
Lambertus Rutten - Managing Director& CEO, MCX
12. NATIONAL COMMODITY & DERIVATIVE EXCHANGE INTRODUCTION
TO
13. NCDEX is a public limited company incorporated on April 23,
2003 under the Companies Act, 1956. It has commenced its operations
on December 15, 2003. National Commodity & Derivatives Exchange
Limited (NCDEX) is a professionally managed on-line multi-commodity
exchange. NCDEX is the only commodity exchange in the country
promoted by national level institutions. NCDEX is regulated by
Forward Markets Commission. NCDEX is located in Mumbai and offers
facilities to its members about 550 centers throughout India. The
reach will gradually be expanded to more centers. NCDEX currently
facilitates trading of 57 commodities. National Multi-Commodity
Exchange of India Limited (NMCE), the first De-Mutualized
Electronic Multi- Commodity Exchange of India granted the National
status on a permanent basis by the Government of India and
operational since 26th November 2002. It is the only Commodity
Exchange in the world to have received ISO 9001:2000 certification
from British Standard Institutions (BSI). Innovation is the way of
life at NMCE. NMCE commenced futures trading in 24 commodities on
26th November, 2002 . NMCE was the first exchange to take up the
issue of differential treatment of speculative loss.
14. NATIONAL MULTI-COMMODITY EXCHANGE INTRODUCTION TO
15. National Multi-Commodity Exchange of India Limited (NMCE),
the first De-Mutualized Electronic Multi-Commodity Exchange of
India granted the National status on a permanent basis by the
Government of India and operational since 26th November 2002. It is
the only Commodity Exchange in the world to have received ISO
9001:2000 certification from British Standard Institutions (BSI)
Innovation is the way of life at NMCE. NMCE commenced futures
trading in 24 commodities on 26th November, 2002 on a national
scale and the basket of commodities has grown substantially since
then to include cash crops, food grains, plantations, spices, oil
seeds, metals & bullion among others. NMCE was the first
exchange to take up the issue of differential treatment of
speculative loss. It was also the first exchange to enroll
participation of high net-worth corporate securities brokers in
commodity derivatives market.
16. Introduction to Forward market commission
17. 1. Forward Markets Commission (FMC) headquartered at
Mumbai, is a regulatory authority which is overseen by the Ministry
of Consumer Affairs, Food and Public Distribution, Govt. of India.
2. It is a statutory body set up in 1953 under the Forward
Contracts (Regulation) Act, 1952. 3. " The Act provides that the
Commission shall consist of not less than two but not exceeding
four members appointed by the Central Government out of them being
nominated by the Central Government to be the Chairman. 4.
Currently Commission comprises three members among whom Shri B.C.
Khatua, IAS, is the Chairman, Shri Rajeev Kumar Agarwal, IRS and
Shri D.S.Kolamkar, IES are the Members of the Commission 5. But in
latest news (2015) it is decided and declared by ministry of
finance (MOF), ministry of commerce (MOC) to make the control of
FMC is under Control of SEBI only.
18. FMC MOC, SEBI MOF
19. Company profile
20. INTRODUCTION TO COMPANY Maitra Commodities (P) Ltd is an
emerging commodity broking firm. We are trading cum clearing member
of Multi Commodity Exchange of India Limited (MCX). Their vision is
to educate our clients in and provide opportunities for trading and
hedging in futures market. They offer ONLINE TRADING in more than
55 commodity future contracts. This firm equipped with: 1. A
Knowledgeable and professionally qualified team. 2. A Proactive and
Customer Centric Support Team. They Provide: 1. Education &
Awareness into the Commodities Future Markets. 2. Dedicated
Customer Centric team to handle customer Queries. 3. Research on
Base Metals, Precious Metals, Energy products.
21. MAJOR PRODUCTS IN TRADING BULLIONS Gold Silver M Gold HNI
Gold M Platinum Silver Silver HNI Gold Guinea OIL & OIL SEEDS
1.Crude Palm Oil 2.Kapasia Khalid 3.Soya Bean 4.Refined Soya Oil
CEREALS Barley Wheat Maize-Feed / Industrial Grade
22. Products cont. METALS Aluminum Copper Lead Zinc Mini Nickel
Tin Zinc Lead Mini PLANTATIONS Rubber FIBER Kapas SPICES Cardamom
Turmeric Coriander PULSES Chaos ENERGY ATF Crude Oil Natural Gas
Gasoline Heating Oil Imported Thermal Coal Electricity Monthly
& Weekly WEATHER Carbon(CER) Carbon(CFI) OTHERS Almond Gaur
Seed Potato (Agra) Menthe Oil Melted Menthol Flakes
23. INTRODUCTION TO THE TOPIC
24. DEFINITION AND MEANING Commodity includes all kinds of
goods. FCRA defines commodity goods as every kind of movable
property other than actionable claims, money and securities.
Futures trading is organized in such goods are commodities as are
permitted by the central Government. At present all goods and
products of agricultural including plantation, mineral and fossil
origin are allowed for futures trading under the auspices of the
commodity exchanges recognized under the FCRA. Commodities include
precious (gold and silver) and non-ferrous metals; cereals and
pulses; ginned and un-ginned cotton; oilseeds, oils and oilcakes;
raw jute and jute goods; sugar and guar; potatoes and onions;
coffee and tea; rubber and spices
25. COMMODITY DERIVATIVES Derivatives as a tool for managing
risk first originated in the commodities markets. In India, trading
in commodity futures has been in existence from the 19th century
with organized trading in cotton through the establishment of
Cotton Trade Association in 1875. Over a period of time, other
commodities like crude oil were permitted to be traded in futures
exchanges. Regulatory constraints in 1960s resulted in virtual
dismantling of the commodities future markets. It is only in the
last decade that crude oil trading in commodity future exchanges
have been actively encouraged.
26. WHY TRADE IN COMMODITIES? 1. No need to study of balance
sheet, P&L statement, EBITDA and reading between the lines. 2.
Commodity trading is about the simple economics of supply and
demand. 3. Supports are known, only resistance matters! Minimum
support price acts as a statutory support for many commodities. 4.
No Dollar-Rupee premiums/discounts. 5. No hedging on the NYMEX. 6.
Indian commodity derivatives hedge both forex and commodity
specific risk, at a single cost. 7. No brainstorming over market
direction. 8. The Seasonality patterns quiet often provide a clue
to both short- and long-term players. 9. No scam, no price rigging.
10. Commodity trading comes with no insider trading information and
company specific risk. Trading of all the derivatives in India is
carried over: Exchanges Over the counter
27. REVIEW OF LITERATURE This chapter is divided into two main
parts: explanations of terms and concepts found later in the
literature reviews and a survey of literature reviews on
candlesticks and RSI ANALYSIS. Olson (2014) finds different results
on the profitability of the moving average trading, CANDLESTICKS
rules. He finds that trading rule returns decline over time after
1970s, to approximately zero by the 1990s. Olson also find that
candlestick pattern is one of the best trading strategies for short
term investments as well as long term. crudeoil has plummeted below
76.4% Fibonacci retracement level. More bearishness to be witnessed
over intraday basis due to the candlestick formations and failure
to breach 54.20 initial resistance.
28. Longworth (1981) uses CAD/USD spot and forward rates from
July 1970 to October 1976. He finds that forward rates can be
predicted using spot reference rates, concluding that markets are
inefficient. The results show that technical analysis is applied
mainly for the shorter time frames for entry and exit timings.
Moreover, technical analysis tools are found to be the best tools
for trading currencies. The survey results also reveal that
fundamentals are reliable for the long term picture, whereas others
rely on both fundamental and technical analyses in taking trading
decisions. Brock, Lakonishok and LeBaron (1992) examine two simple,
common trading rules: moving averages and range breakouts in the
DJIA, from 1897 to 1986. I. He had applied a standard statistical
analysis of the bootstrap method, II. the results reveal strong
evidence of the technical trading strategies applied. III. The Buy
signals are found to constantly produce higher returns than sell
signals. Also, the returns following buy signals are less volatile
compared with the returns generated by sell signals.
29. Levich and Thomas (1994) examine the impact of technical
trading strategies in the foreign exchange market. by using futures
contracts of a 15-year time span. Their data sample covers the
years from 1976 to 1990. After applying bootstrap methodology, and
a statistical approach, thousands of new exchange rate series are
randomly generated; each tested series profitability is examined
using a technical analysis approach. The empirical results of
profit significance in both original series and randomly generated
series are compared. The findings reveal that technical trading
systems are significantly profitable. Although some profits
declined during the five years of 1986-90, on an average, the
profiles are found still positive and significant in some periods.
Thus, these results provide evidence of profitability and
statistical evidence of how technical trading systems are
profitable in the foreign exchange market. Silber (1995) is among
the first researchers who examine the profitability of simple
trading strategies in foreign exchange markets in presence of
central banks interventions. His sample covers the German mark,
Swiss franc, Japanese yen, British pound and Canadian dollar. He
uses simple moving averages as trading rules. He finds evidence
that technical rules can be valuable in markets where governments
are found big players. The results show that government
interventions provide speculators with an opportunity to generate
abnormal returns by applying simple technical trading
strategies.
30. Gencay (1997) also finds strong evidence of profitable
simple technical trading rules in daily Dow Jones Industrial
Average Index. 1. He had examined linear and nonlinear
predictability of stock market return using historical buy and sell
signals of the moving average rules. 2. the result shows evidence
of nonlinear predictability in the US stock markets, supporting the
results found by Brock, Lakonishok and LeBaron (1992). LeBaron
(1998) reviews some evidence that shows predictive value over
future foreign exchange prices. 1. He analyses the profitability of
simple trading rules in relation with central bank activity, using
intervention information from the Fed. 2. His forecasts are
assessed over one day and one week periods. 3. His sample uses
weekly and daily foreign exchange rates of Deusche mark (DM) and
Japanese yen (JP) from January 1979 to December 1992. 4. The
interest rate series used is one week Euro rates. The trading rules
compare the current price with a moving average of historical
prices. 5. He finds that the predictability of exchange rates
diminishes during the periods when the Fed is inactive. Osler
(2000) examines the technical trading rules of support and
resistance levels provided by six foreign exchange trading
companies. The data sample covers the period from 1996 to 1998. The
statistical test of the bootstrap technique is used. The results
show that signals are very successful in forecasting trend
interruptions or reversals. The findings also show that some
companies are more accurate in identifying turning points in
exchange rate trends.
31. Saacke (2002) Moreover, analyzing daily exchange rates of
USD/DEM as well as daily USD and DEM overnight Euro rates, from
January 1979 to July 1994, provides further evidence of the unusual
profitability of applying technical trading strategies on days when
the Fed and Bundesbank interventions take place. The central banks
are found to gain returns when they intervene in foreign exchange
markets and with the usefulness of technical analysis. Intervention
returns and trading rule profitability are evaluated during
horizons and post interventions. Exchange rates are found to react
in the opposite direction of central banks intentions in the short
term, but in line with their targets in the long term. The
researchers find that the trading rules of using moving averages
are considerably profitable on the days when the central banks
interfere. The findings also reveal that trading rules returns are
still high on days in which interventions did not take place or on
preceding days. Osker (2003) examines clustering of foreign
currency stop-loss orders as well as take profit orders as they are
considered main orders when placing trading orders. His data covers
9,655 orders with a total of more than $55 billion, from August 1,
1999, to April 11, 2000. His sample covers three foreign
currencies: USD/JPY, EUR/USD and GBP/USD. He uses the crowded
orders to provide an explanation for two common predictions of
technical analysis. First, trends are likely to reverse directions
at support and resistance areas. Second, trends are likely to move
faster after prices penetrate such levels. He finds that
take-profit orders gather at round numbers, explaining the first
profit forecasting, whereas stop- loss orders concentrate heavily
just after round numbers; this explains the reason behind the
second forecasting. These findings are obtained based on the
closing rates of both orders placed at the famous dealing bank of
National Westminster. The order clustering phenomenon is due to
different common reasons; round numbers are easy to remember and to
place orders at as they are the first to come to anyones mind. The
final results show that technical trading rules can be profitable
for market participants.
32. Stephen (2008) examines the profitability of using
technical models of moving averages and momentum that add up to
1024 technical trading rules in DM/USD. He finds that all the
trading rules are profitable. The profitability is mainly because
of the exploitation of exchange rate trends; the result stay valid
even with sub-periods trading and declining profit during late
1980s. Krishnan and Menon (2009) study the influence of foreign
currencies, technical indicators and time frames on trading
profits. The research covers the period from September 2006 to
October 2008 with 1,400 observations in the sample and two
durations: one year and three months. The currency pairs include
EUR/USD, GBP/USD, USD/CHF and USD/JPY. The time frames cover five
minutes, 15 minutes, 30 minutes, one hour, four hours and one day.
The technical indicators used are five leading and five lagging.
The findings reveal that using technical analysis in foreign
currency trading activities is profitable; all of the currencies.
The findings also show that shortterm trading is riskier and of low
liquidity, compared to the long-term trading.
33. Cekirdekci and Iliev (2010): The research examines a
technical trading system using and back tests of around 250 stocks
from various industry sectors, from April 2005 to April 2010. The
initial tested set ups include buy and sell filters, inside bar,
simple and exponential moving averages, a volume indicator, per
cent trailing exist, overbought and oversold areas of Relative
Strength Index and candlesticks. The results show that, when
combining buy and sell signals with other indicators, such as the
volume indicator, the opening range is a powerful model; it
generates significant returns when traded with the correct stock.
Holmberg, Lnnbark and Lundstrm (2012) test the profitability of the
trading strategy of the Open Range Breakout (ORB), but in the US
crude oil futures prices from March, 1983 to January, 2011. The ORB
is a trading rule that signals entry and exit rules once the price
moves beyond predefined boundaries. Using the joint distribution of
low, high, open and close prices over a period of time, the
researchers find that their ORB trading rule significantly
generates high returns
34. Other researchers in 2014-2015 delivered results of
patterns : The long position should be closed when: The RSI reading
falls below the 50.00 level, or the market reaches and stagnates at
a major level of resistance, trend line or other level of
significance, or a Shooting Star/Bearish Engulfing formation
appears. A trader will look to go short when: The RSI reading is
below the 50.00 level; second, a candlestick pattern such as a
Shooting Star, or a Bearish Engulfing formation confirms the
movement to the downside. The protective stop needs to be placed at
the closest level of resistance. The short position should be
closed when: The RSI reading jumps above the 50.00 level, or the
market reaches and stagnates at a major level of support, trend
line or other level of significance, or a Hammer/Bullish Engulfing
formation appears.
35. RESEARCH METHODOLOGY
36. RESEARCH OBJECTIVE To analyze the COMPARATIVE STUDY OF
SUCCESS RATES IN TWO TECHNICAL INDICATORS PERTAINING TO CRUDE OIL
TRADING.
37. SAMPLING DESIGN Sampling Area : global commodity market
Sample collection : 50 each technical indicator Sample Size : 200
METHODS Primary Data : Primary data collected through live trading
system of Multi Commodity Exchange Secondary data : The secondary
data is mostly collected from Websites, Books, Journals and
Commodity broking companies Research method : Correlational
research Sampling method : Stratified sampling
38. RESEARCH DESIGN Research : Descriptive & Objective Data
Source : primary source, Secondary data Research Method : Survey
Method Research Technique : random sampling technique Research
tools : 1.candlesticks(Doji, Hammer, Inverse hammer). 2.Relative
strength index Data collection tools : mt4,mt5 soft wares.
39. Types of candlesticks used
40. Data collection process candlesticks Doji Inverse
hammerhammer
41. DATA ANALYSIS
42. Categories in data analysis Candlesticks Inverse hammer
Hammer doji Analysis candlesticks Relative strength index
43. Candlestick analysis GROSS PROFIT GROSS LOSS NET PROFIT
24277.4354 -8558.2525 15719.1829 -10000 -5000 0 5000 10000 15000
20000 25000 GROSS PROFIT GROSS LOSS NET PROFIT SERIES1 24277.4354
-8558.2525 15719.1829 24277.4354 -8558.2525 15719.1829 Doji
53. COMPARISION OF CRUDE OIL SUCCESS RATES IN DISTINCT
CANDLESTICKS WITH RSI INDEX DOJI HAMMER INVERSE HAMMER DOJIHAMMER
INVERSE HAMMER RSI
54. DOJI VS RSI TOTAL NO.OF SAMPLES SUCCESS percentage of DOJI
SUCCESS percentage of RSI 50 78 74 0 10 20 30 40 50 60 70 80 TOTAL
NO.OF SAMPLES SUCCESS percentage of DOJI SUCCESS percentage of RSI
DOJI VS RSI Series1 50 78 74 50 78% 74% DOJI Vs RSI
55. HAMMER Vs. RSI TOTAL NO.OF SAMPLES SUCCESS percentage of
HAMMER SUCCESS percentage of RSI 50 80 74 0 10 20 30 40 50 60 70 80
TOTAL NO.OF SAMPLES SUCCESS percentage of HAMMER SUCCESS percentage
of RSI HAMMER Vs RSI Series1 50 80 74 50 80% 74% HAMMER Vs RSI
56. INVERSE HAMMER Vs. RSI TOTAL NO.OF SAMPLES SUCCESS
percentage of INVERSE HAMMER SUCCESS percentage of RSI 50 70 74 0
10 20 30 40 50 60 70 80 TOTAL NO.OF SAMPLES SUCCESS percentage of
INVERSE HAMMER SUCCESS percentage of RSI INVERSE HAMMER Vs RSI
Series1 50 80 74 50 70% 74% INVERSE HAMMER Vs RSI
57. FINDINGS 1. From the study it is found that the success
rate of hammer is much more than doji and invertible hammer when
trading of crude oil in global commodity market 2. From the study
it is found that Doji formation in candlesticks has given higher
success rate than invertible hammer, but invertible hammer has
given return in terms of rupees. 3. From the study it is found that
the risk percentage in RSI is much more than candlestick 4. From
the study it is found that RSI has given higher returns than
candlesticks when trading global commodity market
58. RECOMMENDATIONS 1. I recommend the trader to use either
candlestick or RSI for his intraday trading based on his risk
taking capabilities. 2. The trader with lesser risk taking
capabilities to use candlesticks for his intraday trading. 3. The
trader who is expecting higher returns to use RSI for his intraday
trading. 4. The trader who is using RSI to maintain proper amount
in his DEMAT account /trading account. Since the study is in short
term the investors should be enable optimistic thinking and move on
further. I also strongly recommend that investors should not always
depends on only one technical indicator in fluctuated market.
59. SUGGESTIONS I suggest that investors who should capturing
the crude oil trading in commodity market to make a sense of
candlestick like hammer and inverse hammers trend points. Investors
rather optioned for RSI with long term changes in movement of
values better to make use of simplified technique like Japanese
candlestick trends. In random walk study also prefer in Japanese
analysis(candlestick). Japanese candlestick is most contingency
than other technical indicators & also simple to understand the
short and long position variances in market conditions. Investors
should
60. CONCLUSIONS The candlesticks and relative strength index
techniques for trading crude oil in global commodity market is
having moderate success rates which gives a result greets towards
investors to invest especially in commodities like crude oil. The
Exchange will continue to minimize the adverse effects of price
volatilities; providing commodity ecosystem participants with
neutral, secure and transparent trade mechanisms. The risk averse
capacity of investors should be OPTIMIZED and their level of
satisfied results with candlestick techniques used in their early
investments.