Fadin Trades

[Sharkfin]

I saw a quote in a journal recently - "Think about the first "sure thing" chart formation you ever learned about. Chances are some traders are trading that formation now, so you could fade their trades and likely do alright." What is the author saying here? Why should the fade work better than trading the formation?
Sharkfin

 

[Splitlink]

I saw a quote in a journal recently - "Think about the first "sure thing" chart formation you ever learned about. Chances are some traders are trading that formation now, so you could fade their trades and likely do alright." What is the author saying here? Why should the fade work better than trading the formation?
Sharkfin

Seems something like using the accumulation/distribution line. You could look into that.
Although it's a short thread in price/volume, the explanation by dbphoenix is good.

Split

 

[new_trader]

I saw a quote in a journal recently - "Think about the first "sure thing" chart formation you ever learned about. Chances are some traders are trading that formation now, so you could fade their trades and likely do alright." What is the author saying here? Why should the fade work better than trading the formation?
Sharkfin

There will always be contrarians and those that follow the herd-- A duel between an irresistible force and an immovable object! Should you fade the pattern? That's like trying to figure out what the average trader thinks the average trader thinks the average trader will do.

Yes, you read it correctly: That's like trying to figure out what the average trader thinks the average trader thinks the average trader will do.

 

[new_trader]

I saw a quote in a journal recently - "Think about the first "sure thing" chart formation you ever learned about. Chances are some traders are trading that formation now, so you could fade their trades and likely do alright." What is the author saying here? Why should the fade work better than trading the formation?
Sharkfin

The more I think about this the more ridiculous the statement becomes. How can the author possibly know what chart formations you are trading? You may have found a formation that you have thoroughly back tested and found it yields a high probability of success. How can the authour have any idea of the edge you have!

Such a broad and obscure statement....he may as well have said, "look at the current price of the [instrument] you are trading. Chances are some traders are placing BUY orders, so you could place a SELL and likely do alright"

 

[Sharkfin]

I think what the author means is that there must be loads of newbies out there running some MA crossover (e.g. 9 day crossing 20) or looking to go long on the breakout of triangles in the resource stocks at the moment or trying to pick double bottoms and you can fade. I don't think he means that he can guess what everyone with an edge is trading. My issue is the mechanic of why a fade can succeed. The answer I reckon, from having read some of the interviews again in Schwager's books, is similar to that which Livermore talked of. Market makers knowing what the amateurs will do. It's for us amateurs to see if the pros are going to blow out our stops (in which case we short with them - if we're long) or we wait for them to move on and go long after the retracement.