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Trade Closed: 2012-10-18 5:50 ET

Good morning forex friends! I held on for as long as I could, but it seems that traders have a few different positive scenarios for Spain. This moved the market to a point that invalidated my technical setup, so it was time to go.

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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What’s up with this euro rally? There has a been a slew of recent developments to support the euro (or risk-on behavior in general), and I think traders were already ready to buy some euros: either on the idea that Spain loses its investment grade credit rating–eventually resulting in a bailout request–or that they did keep their investment grade rating, which would lead investors to think a bailout wouldn’t be necessary, and therefore, bring on a risk positive sentiment. Um yeah, I’m confused too.

For whatever reason it may be, traders have bought up the market past the potential resistance area created by the falling trendline and the the major psychological level of 1.3000. This essentially invalidates my simple technical setup, and besides that, it looks like traders may turn that breakout into a momentum play up to 1.35 as risk-on sentiment looks to hang around in the short-term. Because of that, I decided to close my position manually (1.3115), during this morning’s European trading session.

Total: -175 pips/ -0.74% loss

Looking back, this trade is slightly frustrating as the market initially went my way about 140 pips as soon as I put the trade on, but as we can see, I let it turn into a loss. I guess I was really confident in euro weakness (and I still am long term), but the market seems bent on buying up the euro, whether it’s a positive or negative development from Europe.

In retrospect, I think if I see another quick profit like I did with this trade, I’ll just take it to the bank. This past week has shown that the euro is still a difficult, news-driven market to trade, and to take profit when you can because sentiment can turn on a dime.

Well, that’s it for me this week, and after what I just went through with this trade, I think I’ll just stick with swing positions and day trades for now. Thanks for checking out my blog and please feel free to leave a comment below to say hi. To those who look to continue to grind out the rest of the week, good luck and good trading!

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Trade Idea: 2012-10-09 7:34 ET

Good morning forex friends! My first trade idea of the fourth quarter is a longer-term, simple technical setup on EUR/USD. Like my mama always says, “keep it simple silly!”

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I’ve thrown up the daily chart on EUR/USD and it doesn’t get much simpler as that: playing the downtrend and potential resistance at the falling trendline. Looking a bit closer, we can see that area is the 1.3000 major psychological handle, and that it held as major support at the beginning of 2012 before breaking in May. With both lines intersecting on the daily timeframe, it makes a strong case for technical traders to jump in short, creating a potential for resistance in that area.

Fundamentally, we may be heading into a period of slowing global growth, as recently forecasted by the International Monetary Fund: the IMF recently downgraded its global growth forecast to 3.3% from 3.5%. This makes sense as not only Europe faces severe austerity (possibly leading to a rate cut from the ECB), the US growth story could be hit with higher taxes and budget cuts. Not good. Also not good is the quick sell off in the euro after the activation of the European Stability Mechanism (ESM) yesterday; it easily shows the lack of confidence of investors in the rescue fund.

There are a few events coming up in October and November that may kick up risk sentiment (the potential for a Spanish Bailout, US Presidential Elections, or something unforeseen), but until I see a sentiment game changer, I’m playing the downtrend and the likely hood of slower global growth numbers to come out for a while. And I may even get a kicker from the US equity market if we see weaker-than-expected earnings, which may lead to more risk-off action from traders.

So, I’ll look to short at market, with a wide stop of one weekly ATR, and my target will be the 2012 lows. Here’s what I am going to do:

Short EUR/USD at market (1.2940), stop at 1.3175, profit target at 1.2100

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

Because this is a longer term trade, I also plan on scaling into this trade and trail my stop every 235 pips; this gives me a potential max reward-to-risk ratio of over 8:1. Of course, if I do see an event showing that global growth is taking a turn higher, or pushing risk sentiment back higher, then I’ll adjust my position and share my thoughts on my Twitter and Facebook pages. Stay tuned and 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.