Foreign exchange reserves dropped for the seventh time this calendar year as the US dollar showed some signs of revival against major currencies overseas.

Weakening inflows due to the beginning of the Christmas holiday season also led to a drop in reserves.

Dealers attributed the drop to the thinning foreign fund inflows and change in the valuations of currencies in the reserves.

"There are two things. First is that FII flows have turned negative. The other is that currencies like the euro and the pound that have depreciated against the dollar have pulled the value of reserves down," said a dealer at a European bank.

FIIs have pulled out more than Rs 4,000 crore from Indian stock markets this week, making inflows turn negative for the second month in succession and for only the third time this year.

The drop is interesting not only because it's only the seventh one in 2007, but also because the year has been a phenomenal one in forex reserves addition, with as much as $97.43 billion or 56 per cent added to reserves.

The reserves have risen largely as India has recorded huge inflows this year, forcing the RBI to intervene heavily in the forex market to curb the rupee, which has risen 12 per cent this year.

However, forex-watchers are not too worried about the slower inflows as foreign investors are still queuing up for a pie of the India growth story.

"Though FII flows have turned negative, we are still getting inflows through qualified institutional placements (QIP) everyday. These reserves don't signify anything but the rupee may drop in the short term if the dollar continues to again abroad," said a dealer with a US bank.

The dollar has gained against major peers abroad on hope that the US Federal Reserve will not cut rates from here as the latest data from the US shows that inflationary pressures remain.

The US Fed has cut its benchmark target funds rate three times since September to make money cheaper as top international banks struggle to overcome the global credit crunch.

A total of 461.9 billion U.S. dollars was added to the country's forex reserve in 2007, said the central bank.

In December alone, the forex reserve rose by 31.3 billion U.S. dollars.

China's forex reserve maintained a sharp growth in 2007, reaching 1.2 trillion U.S. dollars by the end of March, 1.33 trillion U.S. dollars by the end of June, and 1.43 trillion U.S. dollars by the end of September.

China's soaring trade surplus is the major factor contributing to the forex reserve boom.

Data newly released by the General Administration of Customs show that China's trade surplus surged to a record 262.2 billion U.S. dollars in 2007, representing a 47.7 percent growth over a year earlier.

The huge forex reserve is considered the main reason for excess liquidity in China, as the central bank has to spend quantities of basic money to purchase foreign exchange, thus aggravating the problem of surplus fluidity.

By the end of 2007, the M2 -- a broad measure of money supply, which indicates the monetary demand of the whole country and possible inflation -- grew by 16.72 percent from a year ago to 40.34 trillion yuan.

The growth rate is 0.22 percentage points lower than that by the end of 2006, but still higher than the target growth of 16 percent set by the central bank at the beginning of 2007.

A total amount of 330.3 billion yuan was poured into the market in 2007, 26.2 billion yuan more than 2006.

On the other hand, continuous growth of the forex reserve has in fact increased the pressure on appreciation of the Chinese currency, which in turn has exerted greater pressure on value preservation of China's forex reserve.

The value of the Chinese RMB against the U.S. dollar has appreciated by more than six percent in 2007. The central parity rate of the RMB was 7.2672 to the U.S dollar Friday.

In a move to make better use of the country's huge forex reserve, China established the China Investment Corporate Ltd. (CIC), the country's state forex investment company, in 2007.

The state-owned investment company will invest in overseas financial markets.

The registered capital of 200 billion U.S. dollars of the CIC all comes from the forex reserve of the country, which have been poured into the company so far.

According to data released by the central bank, RMB loans increased by 3.63 trillion yuan in 2007, 1.14 times of the growth in 2006.

Tightening credit growth has become a major target of the government's macro-control policies in 2007.

Against a series of monetary tightening measures including interest rate hike and deposit reserve requirement ratio rise, growth of RMB loans began to slow down in the last two months of 2007.

China's central bank raised the deposit reserve requirement ratio ten times and the benchmark interest rate six times in 2007.

According to the central bank, RMB loans increased by 48.5 billion yuan in December alone, 172 billion yuan less than the same month of 2006.

Data showed that household savings, savings mainly from Chinese residents, rose by 1.13 trillion yuan in 2007, only 54 percent of the increase of 2006.

China's booming mainland A-share market is the major factor distracting people from saving.

The RMB deposit balance was 38.94 trillion yuan at the end of 2007, up 16.07 from a year earlier, said the central bank.

The forex charts that you’ll be using for your trading, depending on the forex system that you’re using, may be either line charts, OHLC charts, and probably most commonly, Japanese candlestick charts.

Remember that any currency pair is always quoted in the same order. For example, the USDCHF is always quoted as the USDCHF, with the USD being the base currency and CHF being the terms currency, and not the other way around.

So on a chart of the USDCHF, when you see on a chart that the current 1 minute candle is fluctuating around 1.3127, this means that 1 USD is equivalent to around 1.3127 Swiss Francs:

Note that more than one time frame may be used in combination when trading a forex system. For example, you many need to use a 4 hour chart, a 1 hour chart and a 5 minute chart. Many systems will use multiple time frames to confirm a trend as a part of the set up for a trade.

Let’s have a further look now on how to read forex charts...

How to Read Forex Charts

Especially if you’re new to forex trading, you’ll need to know some more detail about reading forex charts.

Now we've seen an uptrending chart of CHF already, so let's have a look at a downtrending chart of GBP as our example now:

Note these 5 points about how to read these typical forex charts:

1

Realise that if you go long (that is, buy) the currency pair, that the trade will go in your direction if the chart goes up, that is the base currency is strengthening against the terms currency.

On the other hand, if you short (that is, sell) the currency pair, then you’ll want the currency price to go fall, that is, for the chart to trend down, for the trade to go in your direction.

2

Have a look at the time frame displayed. In this example, it is a 5 minute chart of the USDCHF. Some of your trading systems will look at a few times frames, not just one. For example, you may need to look at the daily, 4 hour, 1 hour, 5 minute or even 1 minute charts. So make sure that the chart you’re looking at has the right time frame.

3

Realise that for most forex charts that you’ll read, that it is the BID price that is plotted on a OHLC or candlestick chart, rather than the ask price. Take this into account when placing buy orders based on looking at the prices on the chart, because when you buy, you buy at the ask (offer), not the bid.

So when you buy at market, you’re actually buying at the offer which is the chart price plus the spread.

Also keep this in mind when you’re placing stop orders as well, because most platforms will ask whether you want to place stop orders as “stop if bid”, or “stop if offered”. If you place a “stop if bid” order at “x” price, then you’ll get out when the chart price reaches that “x” price, but if this is a “stop if bid” buy order (as a stop loss for a long position), rather than a stop sell order, then the price you actually get out at will be that price plus the spread. Your trading system will have rules for how to place stop orders, that is whether to place buy stop orders as “if bid” or “if offered”.

For example, let’s say that you’re in a short position, and your stop loss is hit when the chart price reaches 1.7260, so you place a “stop if bid” buy order, as your stop loss order. The price you’ll buy at is going to be 1.7260 plus the spread of say 4 pips, which will be 1.7264. This is because when the bid price is 1.7260, the offer price is 1.7264.

On the other hand, if you place a “stop if offered” buy order at 1.7264, then you’ll get out of the trade when the offer is 1.7264. Note that when this occurs, that the price on the chart will be 1.7264 minus the spread, which comes to 1.7260. Just follow whatever convention and routine your system uses. But you should have this concept clear now.

4

Realise that the times on the bottom of the chart will be displayed in the time zone that the forex charting software is set to. Some are set to Greenwich Mean Time (GMT), while others are set to New York time, or other time zones as well.

What this means is that if there’s a major economic announcement that you want to trade, or exit a trade beforehand, that you’ll have to convert the time of the announcement, which may be in GMT for example, to both your time and the chart time, so you know when the announcement is actually going to happen.

5

Fifthly, check to see if the times on the bottom of the chart correspond to when the candle opens, or when the candle closes. On the above charts, the times corresponding to the candles are the times that the candles closed, at GMT time. Different charts are different in this regard, so see if you can find out. This is especially important if you’re trading systems which rely on the precise price action in relation to major economic announcements.

Forex trading signals is a way of trading where you get instructions to buy or sell currency pairs at specific times. Plus you get signals to tell you when to exit these positions.

This is an increasingly used method of trading as the internet increases its reach, and as more good forex trading systems are developed.

It has meant that you don’t have to spend time looking through charts each day, by yourself. And you don’t have to spend the upfront time to learn the rules of a system either.

Is it a legitimate way of trading?

Some purists would say that you must learn a system inside out yourself. No other way about it. But receiving forex trading signals or alerts is now a maturing area of forex trading because the providers of forex alerts are becoming increasingly transparent, in that you can analyse the historical results of their systems, and do your due diligence before deciding to trade with them.

There have been signal providers in the past, and even some today, who provide more of a "forecast" service where forex entry signals are given, but with no further instructions after that. For some this could be fine, but then you do have to make up your own system after that point, to decide how to set profit stops or trailing stops for those positions.

But now, various companies now provide forex entry and exit signals that are specific and complete.

When looking at forex signal providers, you should check out:

You will of course have to pay for the forex alert services. For automated systems, there may be additional fees for this as well. So check the details of this out before you commit.

Forex Trader Alert Services: Checking Them Out

Here are some of the top selling forex signal providers to check out. They all have historical results documented, and broken down:

Therefore the advantages of trading with forex signals are:

There are always going to be some traders that enjoy placing the trades and observing the trade as it progresses. For these people, forex signals may be suitable, and is the tool to have.

When trading a forex system with signals, monitor the results, and if the system behaves within the expected behavior of the system ,and proves to you that it is as profitable as you’d expected, then it’s a success. When you have proven this, then you can develop more trust in the system, be more familiar with the personality of the system, and will more comfortably continue trading that profitable system.

Some traders would trade a demo account with the forex signals first, before live trading.

The origin of FOREX trading traces its history to centuries ago. Different currencies and the need to exchange them had existed since the Babylonians. They are credited with the first use of paper notes and receipts. Speculation hardly ever happened, and certainly the enormous speculative activity in the market today would have been frowned upon.

In those days, the value of goods were expressed in terms of other goods(also called as the Barter System). The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Trade was carried among people of Africa, Asia etc through this system.

Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the First World war, most Central banks supported their currencies with convertibility to gold. However, the gold exchange standard had its weaknesses of boom-bust patterns. As an economy strengthened, it would import a great deal from out of the country until it ran down its gold reserves required to support its money; as a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities had hit bottom, appearing attractive to other nations, who would sprint into buying fury that injected the economy with gold until it increased its money supply, drive down interest rates and restore wealth into the economy.. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability. The Great Depression and the removal of the gold standard in 1931 created a serious lull in FOREX market activity. From 1931 until 1973, the FOREX market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the FOREX markets during these times was little.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the world’s largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002. London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.

While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The FOREX exchange market initially worked under the central banks and the governmental institutions but later on it accommodated the various institutions, at present it also includes the dot com booms and the world wide web. The size of the FOREX market now dwarfs any other investment market. The foreign exchange market is the largest financial market in the world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market. It is estimated that more than USD 1,200 Billion are traded every day. It can be said easily that FOREX market is a lucrative opportunity for the modern day savvy investor.

What is an Expert Advisor ?

A Forex Expert Advisor (a.k.a. Forex Trading Robot, EA, MT-4 EA, Automated Forex Trading Software) is a mechanical trading system written in the MQL-4 programming language and designed to automate trading activities on the MetaTrader 4 platform. Expert Advisors can be programmed to alert you of a trading opportunity and can also trade your account automatically managing all aspects of trading operations from sending orders directly to your broker’s server to automatically adjusting stop loss, trailing stops and take profit levels.

Expert Advisors for MetaTrader 4 are all unique and different in the rules they follow to enter and exit the market. Expert Advisors eliminate emotional trading decisions that cripple novice trading accounts. Forex Expert Advisors allow investors to exercise a very strict trading system without falling outside pre-programmed parameters and it is this rock solid consistency one of the features that make these programs so attractive to serious investors. Am Expert Advisors can also eliminate the emotional trading decisions that usually cripple novice Forex trading accounts. Forex Expert Advisors exercise unmatched discipline when trading and can be designed to evaluate more parameters at the same time than any human could keep an eye on at once.

All of the technical indicators that are available in the MT-4 platform can be brought to bear in the logic used by an Expert Advisor in almost any way that one can think of thanks to the MQL-4 programming language. All types of moving averages (simple, exponential, etc.), RSI, CCI, etc. You can also create your own custom indicator and call upon it from an Expert Advisor.

There are many different types of MT-4 Expert Advisors depending on their intended application. Some are designed specifically to trade news events and remain out of the market all other times while other MT-4 Expert Advisors are meant to remain active 24x7. Experienced traders who have their own fine tuned manual trading systems sometimes hire MQL-4 programmers to automate their systems thereby creating custom MT-4 Expert Advisors. All expert advisors have the same goal and that is to automate trading operations and generate a profit while doing so.

Expert Advisors make use of technical indicators in order to assess market conditions and make trading decisions. In order for the Expert Advisor to work, it must be attached to an individual chart on the MetaTrader 4 Forex trading platform. An MT-4 Expert Advisor can take into consideration dozens of different factors in an instant in order to decide what to do next. This ability to consider such a broad range of price influencing factors coupled with the discipline of a mechanical trading system devoid of emotion leads to a very successful trading combination.

Throughout the pages of this web site you will find more detailed information about Forex Expert Advisors. If you have a question about Forex Expert Advisors for the MetaTrader 4 platform and you don’t see it here please send us an email and we will try our best to respond as soon as possible.

How does a Forex Expert Advisor work ?

The program works by calculating the different indicators that it was designed to use and take actions when the market conditions meet the correct criteria as described in the source code of the Expert Advisor.

Fore Example. A simple expert advisor may say something like this:

"If the 9 and 20 day moving averages cross with the 9 day MA above the 20 MA and the RSI is higher than 50 then open a long position (buy)"

That is just an example. You can assign countless conditions for entering and exiting the market as well as managing trades for trailing stops and multiple take profit levels.

An MT-4 Expert Advisor is usually divided into three parts: A startup or ‘init’ function, a main function and a ‘deinit’ or cleanup function. The Expert Advisor will run through its startup function once upon startup and will run through its ‘deinit’ or clean-up function once at the end. In the mean time, the MT-4 Expert Advisor program runs through a cycle of its main function over and over with every incoming tick while it is attached to a chart and active. Once running, the Expert Advisor will not start another cycle for a new tick if it is still in the middle of processing the previous one.

Here is a simple outline of what a simple expert advisor could be programmed to do.

(This would be the 'main' part of the EA and takes place every time a tick comes in.)

1- Check my account. Is there enough equity to open a trade? if so, continue. If not, end.

2- Are there any open trades right now?

2a- If there are, do they need to be closed or do they need their trailing stop adjusted? (do so if needed and exit.)

2b- If there are no open trades, are the market conditions right to open one? (do so if needed and exit. )

3- End.

How to use an Expert Advisor

In order to make use of an Expert Advisor you have to install it on MetaTrader and then attach it to the appropriate chart on MetaTrader 4. This is fairly simple as will be described below. If there are any instructions included with your Expert Advisor you should read them in their entirety.

#1- First, you have to put the Expert Advisor in a place where MetaTrader 4 will be able to use it. In most installations of MetaTrader 4 that place is C:\Program Files\MetaTrader 4\experts The actual Expert Advisor is a file without an icon that ends with .EX4

#2- Now that the Expert Advisor is in the correct location within your computer, re-start MetaTrader 4.

#3- When MetaTrader 4 starts up again you will now see the new Expert Advisor on the left navigation menu.

Learn to Make your own Expert Advisors

In order to make your own expert advisor you have to learn the MQL-4 programming language. If you already know C programming then MQL-4 will be very easy as they are quite similar. If you do not know either language, it would be prudent to take a course in C programming. Then, once you understand the structure of C language, MQL-4 will be a snap. If you are not a programmer, do not let this stop you from learning to make your own Expert Advisors.

The following web site has all the official documentation on the MQL-4 programming language.

The Different Types of Expert Advisors

There are various different types of Expert Advisors for the MetaTrader 4 platform. Here we will discuss some of the more common types. This is by no means a comprehensive list. There can be other types of Expert Advisors based on the creativity of the programmers who make them.

News Expert Advisor - This is a type of hedging EA. The News EA is designed to take advantage of news events and the large price shifts that can occur during financial news releases.

Breakout Expert Advisor - Designed to open a trade when the price breaks through predefined support and resistance levels.

Hedge Expert Advisor - This is any EA that plays two separate and opposing positions and minimizes the loss on one while facilitating maximum profit on the good trade.

Scalper Expert Advisor - This is the type of EA that will get your account canceled or at least heavily restricted by a broker. It aims to secure small profits as soon as they are available.

What is MQL-4 ?

MQL-4 is short for Meta Quotes Language version 4. This is the programming language created by MetaQuotes Software Corp. (http://www.metaquotes.net) that automates the MetaTrader client terminal.

The following web site has all the official documentation on the MQL-4 programming language.

*What is MetaTrader 4 ?

MetaTrader 4 is a free trading platform developed by MetaQuotes Software Corp. (http://www.metaquotes.net) and supported by many different Forex brokers all over the world. MetaTrader 4 easy to learn and very user friendly.

One of the unique qualities of MetaTrader 4 is the ability to automate trading activities through the use of an Expert Advisor.

Can I run more than one Expert Advisor on the same account/client terminal ?

Yes. You can run multiple instances of an Expert Advisor on the same MetaTrader 4 client terminal. As long as all of the Expert Advisors that you are running in the same client terminal have been designed to get along with each other on the same terminal. (not all Expert Advisors can get along on the same terminal) Mainly because they will try to manage each other’s open trades. Programmers get around this by using magic numbers in the market entrance part of the source code of the Expert Advisor.

There are also platform limitations. Only one Expert Advisor can communicate with the trading server at any one time. If multiple Expert Advisors are active on the same terminal and more than one try to communicate with the trading server you will get "Trade context busy" errors in the logs when this happens if you have too many Expert Advisors on one client terminal.