Basically, all markets are connected to each other. There is an interesting way of analysis called intermarket analysis. Intermarket analysis is when you look at the dollar chart and make a view on Nifty. Or you look at the gold chart and make a view on the dollar. This type of analysis is called intermarket analysis. You should know their basic relationship.
In India, money comes from abroad. FII’s bring money. FII’s don’t have money in thus. They have dollars. When they bring dollars to India, they have to buy and sell dollars in India. Dollar prices are inversely related to the market. If dollar prices are increasing, it means money is going out. If dollar prices are decreasing, it means money is coming out.
Dollar prices are affected by other factors. Like the recent move in the dollar due to global factors, dollar index, global uncertainty, risk of. But in the normal course, the price of the dollar goes up and down due to the increase and decrease of money. If you look at the dollar chart, you will find out whether the flows are positive or negative.
If you look at the history of the old chart, there is always an inverse relationship between the dollar and Nifty. Now, suppose you see a double bottom on the dollar chart. This means that if the dollar increases, Nifty will fall. So, one way is to trade in the dollar and the other way is to short Nifty.So, if you are trading the index by looking at the dollar chart, then this is called intermarket analysis.
And this is a very powerful thing. If you are not using it as a system, then you should definitely add it to your analysis for at least an additional dimension. Sometimes you get confirmation. What you are seeing from your analysis and when you see it from the dollar chart, you will see confirmation. And this is something that cannot be manipulated.
Because the rates of the dollar are trading so massively that no one has the authority over its, it is not possible to manipulate its, this is a very powerful insight and it must be seen in your trading, especially to assess the overall direction of Nifty. I have plotted both the charts on a scale. However, you should not plot on one scale because the scale of Nifty is different and the scale of the dollar is different.
So, typically you should plot the scale by neutralizing it. But if you look at it like this, you will see that whenever Nifty has increased, the dollar has fallen. There are some exceptions to this. If you look at this chart, there are some exceptions where Nifty has increased and the dollar has increased. But this happens very rarely.80% of the time, there is a negative correlation. And if we know that there is a negative correlation, then it can be converted into a very powerful trading instrument.
So, you have to see what the dollar chart is saying right now. And according to that, if you trade Nifty, then the chances of your success increase. Because we all know that this is the reality that the source of our market is Fists, the market runs on FII flows in the short term at least. So, if we are charting those FII flows, then there is no better way than the dollar. So, now, as people are analyzing this, suppose people are trading in Nifty the next day.
So, at what time should they start looking at what movement came in the dollar a day before and what movement came in the same day dollar? See, I will show you this through an example. See, this is the dollar that you can see in the line chart.
And the candlestick that you are seeing is Nifty. Now, you will see a pattern here, which is called the double top pattern. It is not a big deal to recognize the double top. Everyone can see tithe shape like M is formed on the chart, so it is called double top. Double top means a stop.
So, we saw that the double top was formed on the dollar chart. And after that, you see what happened to Nifty. The dollar definitely fell, but the sharpness in Nifty, you recognized it from this pattern first. When this pattern was being formed, nothing special was happening in Nifty at that time. So, many times the Nifty chart will be silent, but you will see signs on the dollar chart. And many times it will be that the signs will not be visible. So, see, when you get a sign, take action on it.
See, you are trading in Nifty, you are seeing the price action, you are seeing 50 things. This is just additional information for you. Yes, it is additional information and many times the insight that you get through it, that is, the Q of it is so powerful. And at that time, you see that nothing is happening on the Nifty chart.
So, looking at the Nifty chart, you cannot say that it is going to be so fast. But when you saw the dollar chart, you found out that there Isa breakdown in the dollar. This means that its reflection will definitely come on Nifty. So, instead of shorting the dollar, if you are not a currency trader, then you will not be active in the dollar.
But instead of this, you can buy it in Nifty and trade it. And these trades are very amazing. As I said, 80%, except for some exceptions, most of the time it works like magic. And now let’s talk about the correlation of gold. Please explain that to us. See, all these things, in fact, the investable surplus in the world, the money that is investable, is limited.
Money is not destroyed. Wealth is destroyed. Money is not destroyed. Money finds its own place. So, see, money goes to equity, currency, commodity, and it goes to different asset classes. If you look at their relations, you get very interesting insights. This is called Intermarket Analysis.
And if you look, there is always one lever, and that is the interstate’s the interest rate increases or decreases, money flows from one asset class to another in the world. Now, see, this is not so interesting for a trader. Because if you are a trader for a very short time, then these things do not affect you. But if you are a medium-term trader, a little macro trader, then these things are very important for you.
So, there should be a knowledge of these things, there should be a basic understanding. Because, you see, the flow of money is the same. And the money that is coming from abroad, has many other options.
They are not short of choices. So, if they are putting money in your hands, it means they are looking for something big, that’s why they are putting money. So, it is very important to see that flow. And gold, as we were talking about significance.
Let’s talk about gold. So, see, if you look at gold, gold is a hedge against inflation. Gold is a hedge against event risk. So, whenever you see, why is gold so valuable? Sometimes you will think, why is gold so valuable? Gold is valuable because gold is a symbol of human fear. That the fear inside us, we have kept it in the form of gold.
That when we feel that nothing will remain, whatever man has created, there will be no value left. Our companies, institutions, financial markets, there will be no value left. Only gold will be left at the end. So, whenever a person is afraid, he starts shifting that money to his gold. So, the value of gold increases when that fear is increasing.
So, whenever you see fear in the economy, society, system, then the value of gold increases. And that is typically the time when people start separating from equity. So, if you look at equity and gold, if you talk about their relationship, so, this is typically the relationship between equity and gold.
But see, a big problem with this is the market of the present. So, what happened in the market of the present is that money was printed on a very large scale in the US. What did the printing of this money do? It destroyed all these old relations. And now the trend in the US to print money, and when did it start?
It started a long time ago, when quantitative easing happened after 2008.And after that, after COVID, the US has exceeded and printed so much money that they have never printed in their entire history. So, because of that dollar printing, the relationship between gold and the dollar and gold and global markets, it was destroyed. So, now what is it?
The value of gold is increasing because the dollar is getting weaker. So, the value of gold has increased and the equity market has also increased because the money has shifted to equity. So, money is going to assets and that is why we see that goldish also increasing and the equity market is also increasing. So, here to tell people, the candles you see here are gold and the line you see is dollar.
So, dollar is falling and gold is running. So, this correlation will be useful for you. So, ultimately, you understand that gold is increasing and dollars falling. Dollar is falling here and you see that Nifty is increasing. So, these correlations will help you a lot in the future.
It is very important and see this puzzle where all the pieces fit. If you see a little bit of the prosperity of the market and if you see a big picture, you will make a lot of money.
Repeat this, if you see a big picture, you will make a lot of money. If you see a big picture, you will make a lot of money. So, I remember a story of a gentleman, he was a very good trader. So, he was locked in a room for a few days.
And he really had to say that the noise, especially in today ‘sage where you get so much content and you have exceeded the content. So, what happens is that your own thought process is lost in that content.
So, it is important that you get a little isolated, step back and see a big picture. So, if you see a big picture, you will see that the money that is being spent in foreign money in India, what is the reason behind it? FIIs know that they cannot collect their money from India in day and go. We think that FIIs are like East India Company, they have come here to loot.
But see, they are professional investors. They have invested in many countries like this and they know that the money they are putting in India cannot be withdrawn in a day. You have seen that recently, they sold goods worth 10,000 crores in 2023 and because of that, you have seen how much our index has fallen.
So, if they do serious selling now, where is its buyer? They know this. So, see, the money that is being put in India has a long-term vision and a long-term plan. So, if you see a big picture, you will get a conviction that the money they are putting in is putting money ahead of our collective thinking.