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Trading and Fading in the Forex Marketplace

By : Jared Passey
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The differences between traders and faders are mostly their market momentum and entrance. The traders usually wait for the market to gain momentum in one direction or another and then buy/sell some stocks to make some money before the run ends. A fader will use a solid understanding of cost barriers to decide the end of a move and buy/sell in the other direction to get some of the retracement. Traders will usually try to live by the mantra, �trade with the trend, the trend is your friend� which is not a bad idea, and believe it or not, you can be a fader and trade with the trend.

Asking you what trend we were in right now on a particular pair would be an unfair question, because more than likely we are in an upward trend, of a larger downward trend, of an even larger upward trend and so on. Trend direction all depends on the scale of your trade. Faders use trend trading to find points when they hit the bottom of a trend going up. Simply taking trades off of the underside trend line of an upward trend does not yield good probability trading.

A seasoned trader incorporates many different possible factors and tools to decide the strength of a certain price level. For instance, let's say the cost was getting to the lower trend line of a trend going up, the trader noticed that the intersection would land right on a psychological barrier of 00, and also happened to be the 62% Fibonacci retracement level of the previous move going upward. Noticing both these conditions, the trader has a much higher probability of successfully executing that trade.

One of the benefits of fading is that as soon as you have fine tuned your entries you can enjoy a much smaller effective stop loss, thereby allowing yourself to trade more lots and not risk more of your account. So when you are right you get to earn more money per pip. Another benefit is that you can place your stop losses outside of the places that the currency has been recently; above resistance, below support or behind some price barrier. If you�re placing your stops at levels of price the currency has visited recently then there is no way to keep it from going there again, it is still in a zone of comfort. Many of the techniques that I have designed and trade are based on the fader's way of trading. When I do lose, they are small losses and easy to win. However, when I win, I usually have a positive risk/reward ratio and pull a strong profit from the market.

About the author:
JARED PASSEY has worked with hundreds of people trading foreign currencies, has created several successful high probability trading strategies, trades his own portfolio AND manages a forex fund. Learn forex trading at Jared's free weekly foreign exchange online seminars. NOTE: Use of this article requires links to be intact.


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