Retail traders like to trade breakouts.
The smart minority, the institutional, more seasoned traders, prefer to fade breakouts.And let us warn you: the market maker aint no fool.Ive been trialling it in a live test situation for several weeks now, and the results are promising.This allows time for the larger players, and nowadays algorithmic trading models, to act on the news but still provides ample opportunity for regular traders to digest and capture the bulk of the trend if the news is faded.Investors who use fade strategies, often get referred to as "contrarian investors.If a support level is broken, that means that the general price movement is downwards and people are more likely to sell than buy.It is NOT a great one to use for longer term traders.The slanting dotted line seen beginning just below the white circle shows the progress of the trade from where I sold it just after the bearish hammer candle, to where I was taken out for a 2 to 1 profit.A trader who fades would sell when a price is rising and buy when it's falling.The basic premise is that when price spikes like this it is usually due to lack of liquidity rather than a massive, sustained burst for the currency pair.Akhilesh Ganti, updated May 23, 2019, what is a Fade?Trading fade breakouts appeal to many forex traders.Fade refers to a contrarian investment strategy used to trade against the prevailing trend. Catch news the big fish, forget the small fries.
But the world is not perfect.
The smart minority tends to be comprised of the big players with fade huge accounts and buy/sell orders.
Each week, a global economic strategy calendar lists important economic events, such as interest rate announcements, employment data, economic activity reports and central bank speeches.Hence, I was expecting/hoping for a retracement, which I got.And that forex retracement occurred at a weekly pivot, indicated by the blue news dotted line.Keep in mind that fading breakouts is a great short-term strategy.Lets now learn how to news fade breakouts.Breakouts tend to fail at the first few attempts but may succeed eventually.That is to say, there was no other factor such as a pivot or round number or old support/resistance level to indicate that price might turn there.Support and resistance levels are supposed to be price floors and ceilings.There are other considerations that you could take into account also, most important being whether the news was strong enough to continue carrying price in the original direction of the spike.Trading fade Strategies, advanced Trading Strategies Instruments, reviewed.Breakouts fail simply because the smart minority has to make money off the majority. This trade incorporates several of the things taught in posts on this site, especially with respect to: Price Spikes, price Gaps, hammer Candles, rejection Bar Candlestick Formations (use the Search form above at the right if youre fade not familiar with any of these).
Traders who fade the economic news trade in the opposite direction of the number released.
By learning how to trade false breakouts, also known as fakeouts, you can avoid getting whipsawed.
The chart shown above is a trade I took in todays Asian session on the news five-minute chart on the audusd.