"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.