C. Indicators

INTERNSHIP REPORT

at

LLP “Almaty Exchange”

Prepared by:

Anuar Mukanov

BSc 4

Faculty Internship Supervisor:

Dmitriy Larionov, MBA

BCB

Letter of Transmittal

Dmitriy Larionov, November 28, 2011

Adjunct Lecturer,

Bang College of Business,

KIMEP

Dear Sir,

It is a great honor for me to present you the internship report as a requirement for the completion of the BSc degree program in KIMEP.

Working in Almaty Exchange Dealing Center opened for me doors to a new world; the staff is very friendly, experienced and helpful if needed for any information for the project. Due to the uniqueness of the project and Dealing Center itself, I found it hard to collect all the facts and figures about the Dealing Center. Nevertheless, the report is a comprehensive one, containing as much information as it could. The practical experience that is earned from each day to day working in Almaty Exchange is very priceless.

Acknowledgement

I am very thankful to Ms. Galina Grushevskaya who is a risk manager of Almaty Exchange dealing center and my Internship Supervisor. She is very tolerant, disciplined and kind, who showed me what exactly should be done in order to reach success in the future. Ms. Grushevskaya always explained me clearly any parts of the work I did not understand. Moreover, she answered all the questions I had concerning the market, the entry points in the stocks, explaining where did I go wrong and the trading issues itself I was confused with. Ms. Grushevskaya undoubtedly made a great contribution to my practice of becoming a skillful trader.

Also, I would like to thank Mr. Donald Hoskins, who helped me with choosing the appropriate theme to discuss in this project, and also lead me through my questions and problems.

I am very thankful to Dmitriy Larionov, who is Internship Supervisor of Internship course. All the topics covered during this course were very interesting and useful for me. I can certainly say that it helped me a lot and it also would bring more benefits in future.

I am also grateful to Alexander Gerchik, who helped me throughout my questions when I needed help, or had a misunderstanding.

The other contributors are for my family, who also inspired me on my way of writing this report.

Executive Summary

In the first part of my report author will tell briefly about himself, where and when the work

passed and who is his work supervisor at that company. Also author will describe his career

interests, why he has chosen Almaty Exchange Dealing Center. After that he will tell about how his internship passed, what tasks he performed and

how he contributed to the company and conversely what benefits author received. It was the first time when author was working, so he faced some difficulties which will be described at the end of the first part.

Second part starts with the information about the company, its history and main business

operations. Author will tell how the company is managed, what tasks each unit performs, and who

supervises and controls the company. At the end there is a conclusion about the company’s Organization Part. In the third part which is the last part of the report author will present the Project Part which is on the “ practical application of technical analysis and risk management in intraday stock trading process ” topic. First, author will tell why he have chosen exactly this topic and its significance, also the methodology he used, and scope and limitations of the project will be considered. At the end of the Project Part author will present a conclusion.

Table of Contents

Title………………………………………………………………………………………….1

Letter of Transmittal………………………………………………………………………...2

Acknowledgement..................................................................................................................3

Executive Summary…………………………………………………………………………4

I. Overview of Internship

a. Student name, ID, program & specialization, telephone, email…………………………..6

b. Internship period………………………………………………………………………….6

c. Internship company name, department, address, contact numbers, e-mail……………….6

d. Internship company supervisor’s name and position……………………………………..6

e. Student’s career interests………………………………………………………………….6

f. Internship objectives………………………………………………………………………6

g. Job description/duties & responsibilities………………………………………………….7

h. Student’s contribution to the company…………………………………………………...7

i. Benefits to the Student……………………………………………………………………7

j. Problems and difficulties if any faced during the internship period……………………...7

k. Recommendations and suggestions………………………………………………………8

II. Organization Part

a. Overview of the company……………………………………………………………......9

b. Management issues……………………………………………………………………….10

c. Marketing issues…………………………………………………………………...……11

d. Finance/Accounting issues……………………………………………………………...13

e. Operations management and Information system issues……………………………….13

f. Summary and conclusions……………………………………………………………….14

III. Project Part

a. Introduction……………………………………………………………………………..15

b. Methodology, scope, limitation………………………..………………………………..16

c. Findings and Analysis……………………………………………………………………22

c. Summary and Conclusions……………………………………………………………..26

References …………………………………………………………………………………27

Appendix A. Base pattern (Russian)

Appendix B. Working Algorithm of Almaty Exchange trader

I. Overview of Internship

A. Student Name, ID, Program and Specialization, Telephone, Email

Mukanov Anuar

ID 20070912

BSc-4 Finance

[phone]

[e-mail]

B. Internship Period

The Work period began on 19 of July 2011.

c. Internship Company Name, Department/Division, Address, Contact Numbers, Email

Almaty Exchange dealing center

Asset management department

Address: BNC business center. Marecheka Street (Saina str. Corner)

Contact information: [phone]

E-mail: [e-mail]

d. Internship Company Supervisor’s Name and Position

Galina Grushevskaya, Risk Manager

e. Student’s Career Interests

Since my major is finance, moreover, I took specific investments and portfolio management courses during my Bachelor degree in KIMEP; I am planning to work at the dealing center, which deals with the day trading. Day trading requires a combined understanding of the world economy, portfolio management, skills in creating an arbitrage portfolio, and long-term, short term investments. I believe that after working for 1-2 years at one of these companies will give me very valuable precious experience in the field of trading in the stock market. So, my dream is to become a trader who persistently earns profit.

F. Internship Objectives

My work objectives were:

• To gain a practical knowledge in the field of trading in the stock market.

• To understand how the traders work

• To see how the world’s biggest stock exchange NYSE is operating

• To learn the risk management in the investments

g. Job Description/Duties and Responsibilities

My responsibility is to make profit return from the day investments. Though, the first part of the duty is actually to learn how to make profit by following the theoretical comprehension studied during the training process, by making consistent deals and gain the knowledge out of it. Also, my duty is to fill the each day statistics of the deals. Another part of the responsibility is to make a market analysis before each day’s market opens, and following the psychology and emotional journal, which consists all psychology issues and emotions that appears during the trade and behaves as the obstacle for my successful trading.

h. Student’s Contribution to the Company

I am very responsible right from the start of working at Almaty Exchange and tried to do all the tasks effectively and accurately. Moreover, traders are like a big family. There were times when my colleagues traders had some misunderstandings of the entry points or risk managing, I could help them, as well as sometimes they could lead me to my mistakes.

I. Benefits to the Student

The work process at Almaty Exchange brought me more than just a benefit as working as a trader. It leads me through changes in myself. Now, I see the trading as a life learning step, and by consistent work on yourself, control of the emotions, self-control, destroying your ego, and maintaining a strong and severe discipline and future vision, every person can achieve a success in future. Another part of the benefit that I have gained from the beginning of working in Almaty Exchange is that now I have a huge amount of concepts, understandings of the risk management, trading, and preparing your everyday life.

J. Problems and Difficulties Faced During the Internship Period

The atmosphere that was created was very motivated. Every person was working as hard as they can. One of the tiny difficulties was that I faced, was to follow the same working pressure as the group did. Another big difficulty was the time difference: New York Stock Exchange starts to operate from 19:30 to 2:30 AM (Almaty Time), moreover, there will be a change to a winter time. So, my working day will start from 17:30 and will end at 3:30 AM (previous – 16:30-2:30 am). It was pretty hard to work at night, waking up at 8 o’clock and continue studies in KIMEP.

K. Recommendations and suggestions

In order to work efficiently in the night, as well as studying in the morning I have prepared a day plan, for each hour what I should be doing. It was hard to maintain the studies with the work, time schedules were so different. However, the discipline should exist if I wanted to continue. The day plan let me to allocate the time efficiently. As a result, time difference is no longer an obstacle to combine the work and study.

It was also difficult to get through the negative trades in a row. Emotions are the worst enemies of a trader. The good answer would be to create an emotional journal, to keep the track of the emotions that appear during the trade, in order to get rid of them in the future.

II. Organization Part

A. Overview of the Company

LLP “Almaty Exchange” Dealing Center is a part of the chain of dealing centers that are placed in Ukraine, Moldova, and Russia. They were created and funded by Alexander Gerchik, a professional day trader, one of the most successful and famous traders in United States of America and on the territory of former Soviet Union countries.

In 1993 Alexander went to United States, having behind the college and the institute of Food Science only, so he began to work as a taxi cab driver. In 1996 he joined the brokerage company. In 1996-1998 became a broker in the investment company. From 1998 to date Alexander works as the trader on the NYSE/NASDAQ/AMEX stock exchanges. Since 2003 – Managing partner of one of the largest brokerage companies in the U.S. Since 1999, Alexander had no single month of losses. In 2006, Alexander took part in one of the most prestigious projects, TV show on the CNBC (24-hour broadcast news from the world of stock exchanges and financial markets, the world's largest exchange channel) in the project “The Wall Street Warriors”, where he was chosen out of 200 traders as the safest trader.

Nowadays, Alexander is a partner of the FINAM holdings, Hold Brothers. Alexander created the new dealing center in Almaty in the March of the 2011, so I can say that I joined this company from the very beginning of the company itself.

Galina Grushevskaya, a risk manager and my supervisor, controls our performance, and teaches us throughout the work process. Each trader (out of 28) has a responsibility to implement his knowledge into the trading in the real life in the stock market. On the next day, everyone discuss in group each other’s deals and mistakes.

B. Management issues

As being said, Galina Grushevskaya controls the performance of the traders, and teaches traders. Mahambet Sakibjanov is a director of the dealing center in Almaty, who controls the financial and managerial part.

LLP “Almaty Exchange” is not yet controlled by AFN (committee for the control and supervision of the financial market and financial organizations of the National Bank of the Republic of Kazakhstan) due to its no profit level during this period. LLP “Almaty Exchange” is on the preparation step of the traders. When asset management department will be qualified enough to earn the return of the investments, AFN will start to control the Dealing Center.

C. Marketing issues

Mahambet Sakibjanov plays the part of the HR manager as well as a director of the Dealing Center, who search for and recruit new staff. But the new staff is rarely needed, due to the small amount of available places.

Almost no competitive companies exist in Kazakhstan, which means that Almaty Exchange is one of the first steps to the world of the day trading business. Only few brokerage firms, Broker Credit Service, Teletrade, but they handle a bit different business activity than Almaty Exchange does.

Few mutual funds operate in Kazakhstan, but they are dealing with more long term investments, whether Almaty Exchange is a day trading and a long term trading company. The strength of the day trading over long term investment is that the investment is under the control each second, and if something happens, like crisis or the bankruptcy of the company in which stocks the investment was made, trader can easily exit the position, without having any losses.

Another key strength of the day trading over longer term investment is that mutual funds have no right to “short” the position. “To short” basically means to earn profit from the negative performance of the stock. “To short” “to long” terms will be described in the project part more thoroughly.

The marketing mix (4 P’s)

• Product – LLP “Almaty Exchange” provides an asset management of the

Investors all over the world. Almaty Exchange is a part of the chain of dealing centers, but the investors are shared

• Price – Commission fee on the transactions. Each transaction that was made in

order to make profit has its fee. A standard fee for the minimum transaction amount of 1 lot (100 shares) is 1 dollar to buy the position, and 1 dollar to exit the position. Our office makes more than a thousand transactions per day. Moreover, asset management department is still in the training process.

• Promotion – One of the promotions of our company is made through Alexander.

Alexander Gerchik is a widely known asset manager, and day trader that is frequently welcomed to give an analytic’s view on the market at the RBC TV channel. Investors who are interested in his strategy contact our company, and ask for the possibility of cooperation. Investors can ask for the performance data. By showing this performance, and our strategy, investors decide whether to invest or not. Another source of promotion is that dealing centers are connected to FINAM holdings, through its chain, investors can contact Almaty Exchange

• Place – Each office provides the accessibility to its customers – investors in all

major cities over the CIS countries. Investor invests his assets, and it is saved on the shared bank account. From that bank account asset is allocated to the dealing centers.

Industry and Competitive Analysis

SWOT analysis

Strength	Weaknesses
· Strong performance of the strategy · One of the very first start ups in this field in Kazakhstan · Very few competitors	· Lack of experience of the traders · Lack of the performance in Kazakhstan · Investors are afraid of the stock markets during the debt crisis concerns and Occupy Wall street movement
Opportunities	Threats
· Expand its business, branches in Kazakhstan cities: Astana, Atyrau, Shimkent, Aktau, Karaganda, Taraz	· Ongoing banks liquidity crisis and declining activity on Stock Exchanges · European debt crisis threat can scare investors

d. Finance/Accounting issues

Accounting and financial reports are made by the implementation of the International Financial Reporting Standards (IFRS). Many of the standards forming part of IFRS are known by the older definition of International Accounting Standards (IAS). However, the main sphere of the business activity of this company is to make thousands of short term investments throughout a day, and to quit these positions till the close of the market with the return on the investment. Each trader receives $20,000 of the buying power in the beginning, and if a trader maintains a good result with the following the algorithm, he will be given by more and more buying power. The investments come from the leverage. That is to say, out of $20,000 buying power, $5,000 are only the real money of the investors, and other $15,000 is the credit from the bank. Nevertheless, the best thing of the day trading is that you do not have to pay any interest on the money you take from the bank, due to the fact that the trader return the investment at the end of the day.

D. Operations Management and Information Systems Issues

Almaty Exchange uses Graybox platform to make the trades, this program is specially elaborated for the day trading on the New York Stock Exchange. Think Or Swim platform is used to analyze the graphs of the stocks and the market, as well as conducting a technical analysis. Risk Manager Program is used to control the performance of each trader. If a trader gets a impermissible loss, risk manager closes his opportunity for trading for today.

F. Summary and Conclusions

Almaty Exchange is the first dealing center in Kazakhstan. Its structure is very unique, and from the first sight is hardly understandable. However, it is widely spread all over the world. Moreover, Stock market plays a crucial role in today’s corporate business model.

Almaty Exchange is a start up Dealing Center in Kazakhstan that aims to grow in the upcoming years. After a period of time Almaty Exchange aims to create a chain in other Kazakhstani cities to attract more traders, and also to attract more investors.

One of the major threats to the company is the situation in the world. There is a high possibility that the World can enter into a new much deeper recession level than it was in 2008. It does not affect the trades, due to the fact that trader can earn profit as from the positive change in the stock price, as well a negative change. The threat is that the investors would be scared to invest into the stock market that will lead to the absence of the buying power of the traders.

Almaty Exchange does not focus on its few competitors to the key difference in the operating process. Competitors are focused only on the long-term investments. In situations when a fast reaction is needed in order to prevent the damage to the portfolio of the investor, they are unable to make it. Another key difference is that the mutual funds can’t make profits on the negative price change in the stock, whereas Almaty Exchange can. Even though an investor can decide to put his investments into a long-term investment in “short” position (which means making profit on the negative stock price change) he will be paying a commission for each day similar to a process of borrowing money from the bank.

III. Project part

Introduction

The purpose of this research is to evaluate the significance of the technical analysis and risk management in the intraday stock trading and also to underline the main principles of the technical analysis. The work is sequentially arranged commencing with the description of the scope of study and concluding by suggesting new insights for further research directions.

This research is made in order to estimate the importance of the technical analysis, emphasize best indicators, out of thousands existing indicators, and highlight the basic formations that are low risk. In a stock market, where the data is changed over a millisecond, trader should have a strong algorithm and discipline. Trader should be able to use the needed resources as fast as he can, and to analyze the current situation in the market in few seconds. Therefore, if trader uses wrong indicators, formations, or misunderstandings of technical analysis and risk management investor will lose the investment.

a. Aims and Objectives:

This study is aimed to evaluate the importance of technical analysis, underline the main principles that are almost risk-free in the technical analysis that can be implemented in trading at the stock exchanges. The Dealing Center which is selected is lead by one of the safest traders in the World Alexander Gerchik that has created low risk strategy to make a return on the investments in intraday trading.

The main principal that is working in the stock market is not how much risky you are in order to get the desired return, but how much the investment is low risky that can earn a return. That is why I chose “practical application of technical analysis and risk management in intraday stock trading process” as my topic, due to the fact that profitability of your work correlates with the level of knowledge and experience of the technical analysis. With the combination of technical analysis and risk management, a trader can achieve the desired profit for its customer- investor.

The problem itself is a really hard and unique topic, due to the fact that the stock market industry only at the development level in Kazakhstan. By underlying the key steps and principles it is possible to work in such hard environment as in the stock market. Stock market changes day by day, and to be able to work in it, it is crucial to have the ability to adapt, and also to have the great collaboration of technical analysis and risk management.

Consequently, the following aims and objectives were designed to accomplish this study:

1. To identify major principles of technical analysis and risk management;

3. To identify and appraise these principles in terms of its impact on business performance;

5. To analyze and suggest feasible ways of efficient and profitable entry points into the position.

B. Limitations

Stock trading market is a really unique field and also a really hard field to make a research. From week to week, stock market changes everything. Formations that were working yesterday, would not work today. Another weakness is that the situation in the world right now is very hard to understand and analyze. World politics, wars in Libya, Egypt, terroristic acts all over the world, the new movement “Occupy the Wall Street” that spreads all over the world have a bit strong, and hard to understand “influence” on the stock market. That is to say, that some principles that are used in technical analysis are not working due to the force majeure situation in the world. Another influence on the stock market is the possibility of the upcoming debt crisis. Europe is in a bad shape. Greece’s public debt as a % of GDP is 128% right now. This means that they earn less than they borrowed. Italy’s public debt as a % of GDP is 118%. Hungary is in a bad situation too. Recently, government of Hungary asked European Central Bank to help them, due to the fact that they cannot pay their debt. Ireland, Spain, Portugal and even United States of America are also on the watch list. Investors are afraid. Traders find difficulties to implement the technical analysis during such hard times. If one of the countries announces that they defaulted on their debt, the chain of defaults will be started, and crisis will be unavoidable.

Methodology

Trading successfully is by no means a simple matter. Trading requires time, market knowledge and market understanding and a large amount of self restraint. (Bang, 2004) Trading intraday requires a combination of thousands of factors: technical analysis, patterns, market force, fundamental analysis of the stock, fundamental news in the world like Greece debt concern etc. According to Bang, market expectation relates to what most people are expecting as far as upcoming news is concerned. If people are expecting an interest rate to rise and it does, then there usually will not be much of a movement because the information will already have been 'discounted' by the market, alternatively if the adverse happens, markets will usually react violently.

Patterns, analysis of the trend, and overall performance of the stock chart are the important bricks of the technical analysis fundament.

a. Trend lines. Support and resistance. One of the very key basics is to analyze the trend of the stock. Connecting minimum 3 lowest and highest points with a line is a trend line.

figure 1

By connecting three lowest points, as can be seen on the figure 1, the stock is in uptrend. The line can be also called as a support line. At the intersection of the line and the bar, trader can buy the shares.

“To long” stock, means that trader buys the stock. After a while, trader sells it at a higher price, and the difference is the earning.

“To short” stock, means that trader sells the stock that he does not own, and buys it after a while, at a lower price. The difference is the earning. Brokerage Company has a pool of available stocks of the investors, usually who are investing in a long term period. They do not use this stock throughout a period of time. When a trader puts an order that he does not own, he asks a broker to borrow him this stock of another investor, in order to sell it at a higher price, in a condition that trader will return this stock after a period of time. Trader aims to buy back the stock at a lower price, and return the stock to the investor from whom he borrowed the stock.

Figure 2

At the figure 2, stock is in its strong downtrend. The short position entry point exists at the intersection of the trend line and bars.

In order to be risk averse, “stop” function exist. Stop function allows the trader to back up his plan. In the case if the stock is breaking his plan, stop function is activated automatically on a set before price level to allow the trader to exit the position with minimum losses, that trader is ready to lose.

At the figure 2, stop function would be good to put above the trend line.

Figure 3

At the figure 3, two lines are provided, that show that stock is in its flat trend. Entry point is at the connection of the bars and lines. These lines are also known as support and resistance lines. Support line shows the price level at which stock does not go lower than this line. Resistance line shows the price level at which stock finds it difficult to go higher than this price.

As the support/resistance level can also be:

1) opening price

2) previous day closing price

3) day high/day low

4) 52 high/52 low (the highest price over the year/the lowest price over the year)

5) Moving average indicator

6) Full figures (10;20;25;21;13.5,8.5) in the price. At these full figures big investors usually enter the stock. High volatility investment moves the stock price.

7) Support/resistance lines (trend lines)

8) Pattern lines

At the price level, when trend is broken, new trend can be created, however it should be clear by seeing that the market index (Dow Jones index, S&P 500 index and others) are breaking their trend lines too.

c. Indicators

Indicators are created by an electronic program that provides the other information, more than just trend lines to analyze the situation in the stock.

Moving Average indicator is a compound indicator that combines the 200 days price level, to show the medium price level, at which stock is moving.

Figure 4

Different figures are used to create the moving average indicator. Usually it is 200 day, 50 day moving average lines as in the figure 5.

Figure 5

The area between two lines shows where stock is strong, the trader can enter the stock between the lines.

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