Rumor of a ratings downgrade for some European countries is tugging traders risk appetite in the worldwide stock markets . As a result, the Dow Jones Industrials is breaking below 12,400 which has been a floor for prices this week. The EURJPY is testing its support in the bear flag formation offering a selling opportunity near 97.50.

With the Dow Jones Industrials breaking the important 12,400 level, this increases the confidence that a top is in place. See this Monday ( Stocks Ready to Shed Holiday Weight ) and Wednesday’s report (USDCHF Poised for a Breakout as Dow Jones Industrials Moves Lower) for 2 other trading opportunities. I find it interesting that today’s break of 12,400 nearly coincides with the EURJPY bear flag formation.

The bear flag pattern has 2 components which are the flag and flag pole. After a 526 downtrend over the past 30 days, prices consolidated in a sideways fashion. The trend was so strong to the downside that prices could only retrace about 20% of the down move.

To trade the flag pattern, take the length of the flag pole and project it from the right side of the flag. This high from earlier this morning was 98.80 so projecting 526 pips lower places a profit target of 93.54.

Entry: 97.50

Stop Loss: 98.90

Take Profit: 93.60

This gives us better than a 1:2 risk to reward ratio .

---Written by Jeremy Wagner, Lead Trading Instructor, Education

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