Fade
Definition
To fade a move is to trade against it: selling into a rally or buying into a drop, on the expectation that the move will stall and reverse.
Example
“The trader faded the third test of 52.00 with a short and a stop at 52.18.”
Detailed Explanation
Fading is the core action of range and mean-reversion trading. A range trader fades a test of resistance by selling short near the ceiling; a mean-reversion trader fades a stretched flush by buying it back toward VWAP. The opposite approach is to follow the move, as trend and breakout traders do.
A fade only has an edge when something argues the move is exhausted: a well-tested level, a stretch far beyond normal volatility, or fading volume on the push. Fading a strong trend on the hope it has gone far enough is one of the most expensive habits in day trading, so a fade always needs a tight, pre-set stop just beyond the level or extreme being faded.
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