24# The Fader Trading System
The fader strategy is
a variation of the waiting for the real deal strategy. It uses the daily charts
to identify the range-bound environment and the hourly charts to pinpoint
2. Wait for the market to break below the previous day’s low by at least 15 pips.
3. Place an entry order to buy 15 pips above the previous day’s high.
4. After getting filled, place your initial stop no more than 30 pips away.
5. Take profit on the position when prices increase by double your risk,
or 60 pips.
1. Locate a currency pair whose 14-period ADX is less than 35. Ideally
the ADX should also be trending downward, indicating that the trend
is weakening further.
2. Look for a move above the previous day’s high by at least 15 pips.
3. Place an entry order to sell 15 pips below the previous day’s low.
4. Once filled, place the initial protective stop no more than 30 pips above
5. Take profits on the position when it runs 60 pips in your favor.
The false breakout strategy works best when there are no significant economic
data scheduled for release that could trigger sharp unexpected
movements. For example, prices often consolidate ahead of the U.S.
nonfarm payrolls release. Generally speaking, they are consolidating for
a reason and that reason is because the market is undecided and is either
positioned already or wants to wait to react following that release. Either
way, there is a higher likelihood that any breakout on the back of the release
would be a real one and not one that you want to fade. This strategy
works best with currency pairs that are less volatile and have narrower
Figure is an hourly chart of the EUR/USD. Applying the rules just
given, we see that the 14-period ADX dips below 35, at which point we
begin looking for prices to break below the previous day’s low of 1.2166
by 15 pips. Once that occurs, we look for a break back above the previous
day’s high of 1.2254 by 15 pips, at which point we enter into position at
1.2269. The stop is placed 30 pips below the entry price at 1.2239, with the
limit exit order placed 60 pips above the entry at 1.2329. The exit order gets
triggered a few hours later for a total profit of 60 pips with a risk of 30 pips.
Figure 9.18 is an example of the fader trading strategy on the short
side. Applying the rules to the hourly chart of the GBP/USD, we see that the
14-period ADX dips below 35, at which point we begin to look for prices to
break 15 pips above the previous day’s high of 1.8865 or below the previous
day’s low of 1.8760. The break above occurs first, at which time we look for
prices to reverse and break back below the previous day’s low. A few hours
later, the break occurs and we sell 15 pips below the previous day’s low at
1.8745. We then place our stop 30 pips away at 1.8775 with a take profit
order 60 pips lower at 1.8685. The limit exit order gets triggered, and, as
indicated on the chart, the trade was profitable.
This Strategy Write by kathy
Lien “Day Tading and Swing Trading the
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