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Trade Closed: 2012-01-31 14:00 ET

Good afternoon! Both of my short positions triggered during the European trading session, and I was lucky enough to get the price action I had hoped for. But did I execute well?

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

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Obviously, if I’m asking such a question, then the answer is that I probably didn’t play the market to my full potential. But before I dive into that, let’s review what happened.

During the Asia session, we saw general risk-on flows, pushing the euro higher. There were no new news catalysts, so it looked like more short covering after that one-way risk-off move on Monday. The upside was limited during the European trading session as the 1.32 major psychological level held, probably helped by weak second tier European data. Finally, the US session brought on a series of weak US data (weaker housing, Chicago PMI, and Consumer Confidence). Not usually the biggest market movers, but it definitely brought some traders back to risk aversion mode at the end of the European trading session.

My two short positions were triggered during the last of the short covering during the Asia session, and fortunately stayed alive and prospered throughout the European session. As the European session closed, I decided to close as I thought the US data didn’t provide much of a spark and that the rest of the day would be a snoozer. Closed both positions manually at 1.3129.

First half: +8 pips
Second half: +41 pips
Average position total: 24.5 pips/ +0.14% gain

While this day turned out to be positive, it wasn’t a good trading day for me as I made a couple of mistakes.

First, that straight move lower on Monday convinced me that traders were ready to sell, sell, sell. It was the beginning of a potential reversal, and not a continuation move, so I shouldn’t have used the Fibonacci tool. Had I not used that tool, I probably would have looked more to shorting around 1.32 instead of the Fibs.

And second, I closed early because I thought volatility would drop and traders would be done for the day after the morning US reports. I could have done better by closing down a position and leaving the other open, or just moving stops on both open positions. It’s not often we see strong moves, but when we do, we need to take advantage of them because it’s those 20% of your trades that make up 80% – 90% of your profits. To put it simply, if I was more patient and disciplined, I wouldn’t have left so much on the table.

Well that’s my review and I’m sticking to it. Stay tuned for new ideas or market observations by following me on Twitter and Facebook. Good luck and good trading!

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Trade Idea: 2012-01-30 18:42 ET

Good evening forex friends! Risk aversion is back on track as the Greek bailout negotiations come back into the forefront. Will the uncertain outcome continue to push the euro lower?

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We’re back to worrying about what will happen with the talks between EU leaders and Greek bond holders, so today we saw broad euro weakness and a rise in European sovereign debt yields. French President Sarkozy expects a final agreement within the next few days, but how many times have we heard that song before? I’ll believe when I see it. Let’s be honest. Politicians cutting spending for their constituents has never been in their playbook, so this may drag on for a bit longer. Shoot, it’s tough for world leaders to agree on anything nowadays; just look at the results of the recent World Economic Forum.

So, on this renewed focus of the Greek debt crisis, and on recent forecasts of weaker than expected growth in 2012 for France and Spain, I believe the short-term sentiment will be risk-off and further EUR/USD weakness this week.

Technically, the pair has been rising over the past few weeks, but Monday’s strong down move maybe the first impulse on a new leg lower. According to the stochastic indicator, the pair is showing overbought conditions on the daily, and it’s testing a previously strong inflection area around 1.3150. Finally, on the 15 minute chart above, we can see the pair bouncing higher after today’s downtrend move and it looks like it’s meeting resistance at an area that has shown interest to traders over the past few sessions.

I’d like to scale into a short position in this area for a swing move lower. Here’s what I am going to do:

Sell half position EUR/USD at market (1.3137), stop at 1.3235, pt at 1.3005

Sell half position EUR/USD at 1.3170, stop at 1.3235, pt at 1.3005

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

If both positions are triggered, this trade structure gives me a potential 1.25:1 return-on-risk, and because it is a day trade, I am reducing my risk to 0.50% of my account.

On the forex calendar, we do have German data forecasted to come in better than the previous read, so I may get a further bounce higher to trigger the second half of my position. As always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my open orders or open position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.