Forex Strategy Video: Separating Temptation and a Good Trade

Talking Points:

• When we come across a pristine technical pattern or a high-volatility event, the temptation is to trade

• A one-dimensional trade however is a low probability trade

• We look what constitutes temptation and a good trade with a look at S&P 500, USDJPY, CADJPY and others

Download the Consecutive Bar Indicator used in today's video for free and use it to measure the historical significance and over-extended level of the markets.

A pair has put in for its most consistent run on record, heads into resistance and then completes the picture with a shooting star formation. That is exactly what CADJPY did to end this week. Some would consider this setup complete and a trade signaled. However, I would say it is still 'tentative'. In fact, even setups that have marked a more defined turn (like the S&P 500, USDJPY, EURJPY, GBPCAD, etc) are not yet ready given surrounding conditions. Our concern is not the initial break - or reversal - but the follow through. That's a probability liability given the weekend and BoJ rate decision early next week. We talk about the elements of a temptation versus a high-probability trade in the weekend Strategy Video.

Find out what event risk can threaten the trade setups discussed in today's video with the DailyFX Economic Calendar.