Trading Or Fading Your Way To Forex Success
Posted on December 6, 2008 - Filed Under Finance | Leave a Comment
The differences between traders and faders are mostly their market momentum and entrance. A trader will wait for the market to get 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 price shields to determine the end of a run and buy/sell in the other direction to catch some of the retracement. A trader will mostly try to live by the mantra, "trade with the trend, the trend is your friend" which is not a horrible plan, and you can believe me or not, I think you can be a fader and still use the trend.
If we were to ask you the trend that we were in right now on a certain pair, you probably couldn't answer and it would be a very unfair question. This question would be unfair because many times we are in an upward trend, of a downward trend, and then of another upward trend etc. The direction of the trend just depends on the scale of your trade. A fader would trade with the trend by finding the turning points as they hit the bottom of an upward trend. Simply trading off of the bottom trend line of an upward trend does not yield high probability trading.
An experienced trader incorporates several different possible tools and factors to determine the strength of a price level. For example, let's say the price was getting to the lower trend line of a trend going up, the trader noticed that the apparent point where the trend ine intersects would be 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 better probability of successfully executing that trade.
One of the benefits of being a fader is that as soon as you fine tune your entries you can have 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 greater amounts of money per pip. Another benefit is that you can place your stop losses outside of the places that the money has gone recently; above resistance, below support or in back of some barrier of price. 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 strategies that I have designed and trade are based on the fader style of trading. When I do lose, they are small losses and easy to win. However, when I win, I usually get a positive risk/reward ratio and pull a healthy profit from the market.
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. http://www.lotsofpips.com Learn forex trading at Jared's free weekly foreign exchange online seminars.
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