Hey guys/gals, I am curious what your definitions for what fading a market is. I have seen conflicting definitions (some people say its contraian thinking?) and I want to get a real grasp of the concept. Also how do you guys go about executing a fading strategy I am curious what works and what doesn't? Thanks
I'm sure folks use the term "fading" in a variety of ways, but the basic usage is this: wait for price to reach an area of support or resistance and then, with or without confirmation depending on the strategy and the trader, take an opposite position against that move, in the expectation that the area of support or resistance will hold, with price then moving away from that area of s/r.
In an uptrend, the move from the new high channel back to the ma is the easiest to trade. The new line is set and they send back the weak and the wounded to the ma for more buyers. It's not really a fade, it is just an ambush of a very weak and defenseless march on supposedly safe captured territory. You don't get much, mostly just K rations and occasionally a watch or a cigartette lighter. Hit the bid or you'll only get stuck with the trades that don't work. Use the channel as a stop and cover at or near the ma.
Thank you for all the replies. If I understand the correctly, you mean for example when a stock is going up and then starts to show resistance to sell the stock short with the thought the stock will not break through and fall to the next level of support and visa versa? If this is right, is the opposite of a fade a break out? Interesting ambush tactic I will have to give it a try !!!!! Thanks for clearing all this up...
That's about right. See the morning move on ES/SPY on 2/26/03. It pushed up right to the high the day before, then reversed, and moved down the rest of the day. Then, 2/27, pushes up to the same area again, pushes a little higher on declining volume, then reverses and heads down most of the rest of the day. And so on.