Post of the Day: Fading the Move

Student’s Question:

What does the term “Fading a Move” mean? Thanks.

Power Course Instructor’s Response:

Take a look at the chart below…

After a major move has taken place, there is the very strong likelihood that the pair will retrace to some greater or lesser degree. “Fading the Move” refers to trading against that initial move to the upside in the case of the chart below. (A trader would fade the move in the opposite direction if the initial move was to the downside.)

Oftentimes the fading strategy is employed by fundamental traders after a news announcement that strongly moves a currency pair in one direction or the other. The thought process is that after that initial surge, the pullback/retracement will occur and they will be ready to “fade the move”.