"Fading A Move"
In our webinar on Three Simple Trading Strategies we cover a “News Fade” Strategy. So the question inevitably arises, what is a “fade”?
Take a look at the Daily chart of Gold (XAUUSD) below…
Generally after each strong move in the direction of the trend, bullish in this case, there is a retracement or consolidation. “Fading the move” means that a trader will wait for the move to the upside on this chart, for example, to stall and then they will “fade” that move. In other words, they will open a trade in the opposite direction of the original move…they would short Gold in this case.
Oftentimes the fading strategy is employed by fundamental traders after a news announcement that strongly moves a currency pair or other trading instrument in one direction or the other. The thought process is that after that initial surge or spike in the price, the pullback/retracement will occur and they can fade the move. Bear in mind, however, that when trading against the prevailing trend, a trader is taking on additional risk.
For additional information on the merits of trading with the trend, click HERE …
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.