Fading in the terms of forex trading means trading against the trend. If the trend goes up, fading traders will sell expecting the price to drop and visa-versa. Unlike other types of trading which targets the prevailing trends, fading trading requires to take a position that goes counter to the primary trend. The main assumptions on which fading strategy is based are:
- Securities are overbought
- Early buyers are ready to take profits
- Current buyers may appear at risk
Note: “Fading the market” can be very risky and requires high risk tolerance!