Foreign Flow Analysis on Indonesia Stock Exchange
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In another article, we already discussed how strong is Foreign money on Indonesia Stock Exchange. Maybe we can discuss later how to get the Indonesia market control back from foreign hands.
But, for now, as a retail who does not have significance on the market, why we don’t just follow them who have the ability to control the market? We sure, profit is the end for them, just follow that 2.03 % then. Important note, not all stocks in Indonesia Stock Market is controlled by foreign. Some provisions indicate the stock is controlled by foreign. At least there are 5 parameters about it.
How to Detect Whether The Foreign Mr. Market Controls The Stock
There are 5 parameters about foreign flow analysis to validate the provisions does the stock is controlled by foreign or not. The following is a foreign flow chart of Bank Rakyat Indonesia (BBRI) stock price in the last 2 years. Let use this as an example.
1. Foreign Flow (FF)
The yellow line on the first-row chart, use the right Y-axis. Foreign Flow is the accumulation number by volume of stock that foreign has. Volume is the number of shares (1 share, 2 shares, 1 million shares). If the line is going up, it means foreign is buying the stock. If the line is going down, it means foreign is selling. Neglect the number of how much shares foreign has, just watch does it going up, or down. If you need the ownership proportion, you can compile the data from KSEI website.
2. Foreign Buy Average
The red line on the first-row chart. This parameter estimated the average buying price by foreign. If the current price is above average, means foreign is buying the stock then the price is rallying (Supply vs Demand concept). But, if the current price is too far above the average, the risk is getting higher because it is prone to profit-taking and after that, the price is going down.
If the current price is below or about the average, it means foreign is still accumulating the shares, or even distributing shares and leaving the stocks. This parameter should be aided with validation by looking at Foreign Flow Parameter.
3. Foreign Money Flow
The blue and orange bar on the second-row chart. This parameter shows how much money flow is flowing in or out by the net transaction value of the stock. Net transaction value is how much foreign buys minus how much foreign sells in rupiah. The bigger the absolute value, the more significant the action.
4. Foreign Transaction Proportion
The blue and green lines on the second-row chart. If the three parameters above are more explain what foreign does, these last two parameters will explain how significant is foreign power on the stock.
Foreign Transaction Proportion is a ratio between foreign value transactions and total value transactions. BBRI has foreign transaction proportion of about 80%! It means, in the last 10 days, 80% of the money on BBRI transaction is foreign’s. What do you think? To confirm the stock is controlled by foreign, at least foreign transaction proportion is 30% or above.
Foreign Net Transaction Proportion is a ratio between foreign NET value transactions and total transactions. For example, from 100% transaction, 70% is foreign transaction, buys 70 then sells 60. That means only 10% Net Transaction Proportion, the rest 60% only passed by, from right pocket to left pocket. The more Foreign Net Transaction Proportion, the more serious the action, whether it is buy/accumulate or sell/distribution action.
5. Foreign Flow — Price Movement Correlation
The blue and orange lines on the third chart. FF-Price Correlation is a correlation value between Foreign Flow and Price Movement. As a simple interpretation, there are 2 variables A and B, if the correlation is 1 (100%) when A is going up, so does B. If the correlation is -1 (-100%) when A is going down, B is going up, vice versa. If the correlation is 0, there is no relationship between A and B movement. Actually, the correlation between FF and Price can be seen on the chart, this value only for quantifying.
The blue line is the FF-Price Correlation, and the orange is the moving average with a period of 100 days of the blue. If the correlation is good, then it indicates the price is controlled by foreign. The blue explain the current short condition, and the orange explains the long historical condition. At least 30% correlation is needed for confirming the stock is controlled by foreign.
The fallacy in Using The Foreign Flow Analysis
From those parameters, mainly fourth and fifth, we can conclude the power of foreign on the stock, Low, Medium, or High. Do not use the foreign flow analysis for LOW Foreign Power Stock. There is no relationship between the low FPow Stock with the foreign action. Let use TRAM stock as an example.
We can see the TRAM chart, From April 2018, Foreign is entering this stock, seen from the FF line that is going up with the amount that showed on Foreign Money Flow bar chart. But, why the stock keeps going down? Smart money never loses, right?
Always validate first before using this technique. Foreign Transaction Proportion only about 10%, and the correlation is fluctuating, but the average is about 0 (-20–20). This stock is not controlled by foreign! Use another technique for analyzing it.
Transaction Phase in Foreign Flow Analysis
We can explore more the correlation parameter for defining the phase of the transaction. Creative Trader said there are four phases: Accumulation, Distribution, Mark Up, and Mark Down. We should utilize each phase with different actions. The explanation about it will be discussed in another article.
My main objective for writing this article is for advancing my writing skill, especially in English. Besides that, I like to share my experience. All of what I write is based on what I experienced and what I read. Every people have different experience.
