The "fade the move" strategy:

If using this strategy, a trader will sell on the expectation that the momentum disappears while the price is still rising and buy on the expectation that the momentum will disappear and reverse while the price is still falling.

There are two main notes to this Strategy:

  • Don't trade when the trend is too strong:
Using this strategy in strong market trends is a game where the loss is almost certainly on our part. This is quite evident since trends can continue to move for a long time, and momentum does not easily disappear overnight.

Don't use a strategy for strong trends like this!
  • Use this strategy for sideways market conditions where price bars are unusually explosive.
This strategy will be best used in a sideways market where sudden or explosive moves occur and soar in price but is unsustainable and lacks the motivation to continue.

Use strategy instead of at price zones like these!

How the Fade The Move Strategy works:

Most of these spikes happen during the day, so it's best to use an intraday trading strategy. This strategy requires an approach that is contrary to most conventional trading strategies, and many well-known hedge fund managers often identify themselves as counter-trend traders like this.

Conditions for implementing the strategy:

Condition 1:
  • The market is moving sideways or accumulating, and at the same time falling into overbought/oversold states, causing sudden up / down moves to lack motivation to continue.
Moving sideways or accumulating price zones are the ideal trading environment for this strategy. Price can decline momentum almost immediately after a sharp rise/fall. First, we need to find a sideways market. And luckily, the market spends most of its time sideways, which means the strategy can be used on a regular basis.

GBP / USD trading range forms before the European session opens

The chart above highlights the trading range of GBP / USD just before the European session opens. We don't need to guess in which direction the market will spike, but instead just watch the market move naturally and react to the next price action.

Condition 2
  • The second condition that needs to be met for the strategy to be successful is the appearance of sudden price increases or decreases at critical technical levels (support/resistance; swing high/low; resistance levels) mentality).
In the above case, the GBP / USD plummeted to the support zone and the momentum began to disappear quickly. You can either buy immediately when the price hits support, or you can use a more conservative entry strategy like this:
  • Wait for the market to start reversing and bounce up from the support level.
  • Mark the top of the candle at which the price begins to drop sharply on the chart
  • Place a buy pending order when the top of that candle is broken.
Here is an example (Buy 1 and Buy 2 markers are entry points):

Risk management:

When implementing the strategy, limit your risks to prevent potential losses. Don't forget to use a protective stop loss to minimize possible losses in the event of a trade malfunction.
  • After your order is triggered, place your stop loss below the support level. You can add a buffer around 5-10 pips to protect yourself from possible fake breaks.
  • The next thing you need to define is an ideal place to take profits, always at least two or three times more than your stop loss.

This is a strategy where you need to wait for the price action to take place and trade only after what happens. The first spike is often a "knee jerk" reaction designed to deceive many traders into the market in the wrong direction.

While this strategy looks risky because you are trading against the trend, it can be extremely profitable if used properly. This is because the market spends most of its time consolidating, which is where most of the spikes with no momentum come in.

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