How is Forex Trading Like the Hot Potato Game

Trading Forex Trading Like Playing the Hot Potato Game

(Scroill to see an addendeum)

In the Hot potato game, that players gather in a circle and toss a small object such as a ball, an apple, beanbag or even a real potato to each other as music plays. The player who is let holding the object when the music stops is eliminated from the game.

How is trading like the Hot Potato game?

In trading, a currency, for example, will keep moving higher (lower) until it reaches a level that brings in sellers (buyers) to stem the tide and either sends it sideways or reverses direction. In other words, it keeps moving in one direction until the music stops.

What does it mean in trading when the music stops?

This may be best explained with an illustration from January 22, 2025. As this daily currency chart shows, EURUSD, which seemed headed for parity at the start of the year reversed direction to move higher From a broader perspective, this could be viewed as a retracement of the broader downtrend.

Well, on this day it extended its recovery to test, as this daily chart shows, a key resistance at 1.0467.

When  the music stops.

As this 15 minute chart shows, as ong as EURUSD  kept rising the hot potato game continued. It kept going until it reached the key 1.0457 level in hope that there would be stops to run and the game would go on.

However, instead of stops it ran into sellers. This is where the music stopped. Those pushing for stops got caught with the cooling potato. Game over.

To sum up, if you think of trading in this way it will make sense to you. The hot potato game is like a trading episode.

In this episode, buyers kept passing around the potato by pushing EURUSD higher until there were no more stops left to run as sellers stepped in. This is when the music stopped. As a trader you do not want to be the last one holding the potato when it cooks off.

It is easy to say this in hindsight but those viewing the EURUSD recovery as a retracement should have been on the lookout for signs (e.g. 1.0457 holding) the game was about to end when the music stopped.

Addendum: November 7, 2025

Hot Potato in US stocks

US500 1 HGUR CHART

• Fell sharply like a hot potato.
• Reversed direction once the music stopped
• Fully retraced the move down
• Easy To show with hindsight but one indication that the game had ended was all green candles going up
• But there was more… scroll to the next chart

US500 15 Minute Chart

• The lines on the chart are formed by The Amazing Trader (AT)
• Two red lines drawn off the low is a pattern called an AT Directional Indicator = potential change of direction
• This pattern was confirmed by a third red AT line, which often sees an acceleration of the move after a third line was formed
• Once again, easy to show this in hindsight but it is a pattern that repeats in all instruments and in all time frames.
• Point of this illustration is that treating the US500 sell off as a Hot Potato was profitable as long as the music played but not to overstay your welcome once the music stopped.

How did we know the music stopped ?

Two clues:

• All green candles after the low was formed
• The AT Directional Indicator pattern was an initial sign and then confirmed once the third line was formed.

Could anyone predict a full retracement of the move down?

Answer is no but treating a one-way move as the Hot Potato game should have put you on alert to look for signs thst the music had stopped.

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