I don't understand fading? why would anyone want to go against the trend? I don't see a difference between fading and bottom fishing. IN both cases your looking for a reversal Experts please explain
To a well trained eye, to someone with lots of experience, a move up or down in price doesn't necessarily mean the trend will continue. You watch price action long enough and you'll be able to sniff out that BS tail end of a trend (the final shakeout) and fade or bottom fish those situations for the right reasons. You cant just tell this from looking at a chart, its all about getting down to the nitty gritty details. after a good deal of time, if you've spent your time wisely watching price move, you'll see why people fade/bottom fish.
I guess is because in both cases (fading and bottom fishing) the rewards can be great in a relatively short period of time. Price movements that go against a main trend can be "violent" in either direction.
A. If you have the capital you have a huge advantage since: 1. You don't HAVE to pick the bottom since you can fade (Even though you may try of course) 2. You can weather out a storm so that when it passes, you will be deep in profits. (Plus you have much less fear when you have a large amount of capital which means selling for a loss is more rare then selling for a profit) B: It's a great strategy for less volatile products and/or trading strategies. Spreads, flies, Soybean Oil.
it's all a matter of time frame. Example for long: What's "going against the trend" on one time frame, is (hopefully) buying on a pullback on a higher timeframe. Blindly fading current (short term) trend can be deadly. It has to be done in the proper context.
The basic logic for fading is to catch a contra move after the markets's energy has been spent on the current trend. Of course, the timeframes vary. While fading can be quite lucrative it is hard work: you must be able to escape quickly if the FADE morphs into a pullback and then into resumption of the previous trend. Why would you want to fade when you can trade with the current market trend? Because it is man's ego to exult at being right especially when the crowd is on the other side. Take the ego out of trading and you may be more successful. I fade the market a times when the 5-m and hourly charts are deeply oversold or overbought, with high ticks (greater than 1200 and less than -1200), big volume, big range bars. If you allow it to run with the trend a fade trade could turn into a 'regular' trade as the new trend develops. Such a trade is extremely satisfying and feeds one's ego. If you allow the ego to grow and your lose control then pretty soon you lose all that profit and some from that fade trade. The exit in a fade trade is the key to success. You must know the point you will cut your losses if the markets starts going the other way. Maybe stop loss on a long fade trade at the low of the bar of the fade entry? a hard $ stop?
You should do a search for "Anekdoten" and read his posts. I never met anyone who trend traded but also knew how to catch bottoms and tops with darn good accuracy. To summarize it all, it's all about confluence and the big picture. Daniel
If you watch opening ranges and then breakouts from those reference points and then use TIME you can, with much practice, learn when to enter when price begins retracing from the high of the breakout and the swing is usually profitable.