Suppose you want see a big move but it goes without you. Especially for the day trader, there are times that missing the move means you miss the move. Whereas swing & position traders can get second entries, day traders can simply entirely miss their move if it’s not taken at exactly the right time.
Does this mean that the trade is completely over or are there other options to consider? Let’s find out together. Suppose you saw this move 5 minutes into the day, what would you do?
Obviously hindsight being 20-20 you could have just jumped in. However, notice the first 5 minute bar, it moves over 1/2 the overall move which means if you aren’t lightning quick you immediately have a smaller piece of the pie with no clear spot to put a stop at.
Next, you could wait for a consolidation like what happens around 30 minutes in but that only gets you a 1.5:1 RR at best if you give the proper stop, and that’s only if you’re perfect. Sometimes, especially daytrading, the move simply goes without you. This is why you don’t chase. Chasing is the Fastest Way to Go Broke Day Trading.
Chasing is the Fastest Way to go Broke Day Trading.
So if you missed the move, what now?
If the move was missed, the thing to do instead of chase is to look at the longer term charts. This will show rather quickly whether there’s room lower after a stronger consolidation (like a 15 minute) or if the better play at this point is either pass or fade. Let’s take a look at the daily with the same 5 minute on the right side.
Same chart but a daily screenshot is now included. What stands out against continuation?
- Price low is within pennies of previous pivot low (Support).
- The 200sma is underneath price (Support).
- The cloud is underneath price and rising (Bullish Daily Trend).
- The move is over 2.25x normal Daily Average True Range (Over-Extended).
Now let’s look at the other side. What show’s potential continuation?
- All day trading moving averages are angled down (Not Shown, Lagging).
- Current Strength
Whenever you are taking a trade, remember you are taking on risk because your conviction is there. If your reasons for taking a trade are ever less than reasons for not taking a trade, pass, conviction isn’t there.
To fade an intraday move, you must have conviction. For that to happen, there should be as many of the following reasons as possible. Always remember, if there are more reasons against you than with you, you do not have conviction, no matter how nice the trade looks.
- Daily Support or Resistance
- Long Term Moving Averages on Daily Time Frame (50 or higher)
- Bullish Trend Indicators for Long/Bearish Trend Indicators for Short
- This was talked about in our Indicators 101 Section. You can read up on that now
- Trend Indicators like MACD, Ichimoku Cloud, and LT Moving Averages can all work well here
- Over Extended Ranges
- ATR stands for Average True Range. A stock that moves on average $1 and today has moved $2 either has substantial news/earnings as a reason or is due for a pullback. When the ranges are extended without a news catalyst, be prepared for a rubber band effect.
How to Increase the Odds with a Fade
What if there was a way to instantly get a 14.28% Chance of Picking the Top/Bottom on every single trade? By itself this obviously isn’t an edge but when added too a basket of other pieces, this can become an excellent edge boost. How do you do something like this? How do you gain an immediate and powerful edge on every potential fade?
I’ll tell you. But first, I’d like you to do something for me. This edge is real, and it’s something I’ve seen sold for triple digits yet it’s something so basic I feel everyone should be allowed in on this secret. I don’t want you to have to pay for this edge. But I want you in return to join the CTP Group. This training only gets better and if you are liking it so far, you haven’t seen nothing yet. Simply Click the Link Below and Sign-Up to join. Trust me, It’s Worth it and it’s free. You’ve got nothing to lose but a whole lot to gain.
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The way to increase the odds on every single top/bottom fade is by knowing when to take the trade. There are 6.5 hours of trading time per day, that means 390 minutes. When you look at a 60 minute chart, the charting software automatically gives you 7 bars, 6 actual timeframe bars and 1 half timeframe that is still counted as a full bar for simplistic purposes.
Put another way, there are 7 sixty minute bars per day. This means if you wait until a 60 minute candle closes, you automatically have a 1 in 7 chance of picking the top or bottom of the day. Mathematically this comes out to a 14.28% chance every single time. This isn’t advisable to be overused, but when a high probability fade sets up AND the hour candle just closed, the edge can get incredibly powerful on your side.
Let’s go back to our M example.
First Hour Candle closes, immediately have a 1 in 7 chance the Low of Day is now established.
Not enough by itself, but when adding the additional conviction reasons we stated above, what comes next is a high probability setup.
We took that setup and got out at the 382 fib retracement area, while a 50 fib retracement was ultimately reached. Just depends if you like quick action or want to hold for the long term kill.
In Closing, the Fade play is a valid option but only when done correctly. In case we missed some, here are the biggest takeaways when using this strategy.
- Expect it to retrace 1/3 to 1/2 of the initial move. It is rare to retrace more than that.
- There must be strong conviction as to why you can fade the move. You get to decide the rules of conviction you wish to use, but you must be consistent and only take the trade when they are present.
- This is strongest after the first hour of the day or after any closed hour candle.
- You must decide ahead of time whether you need closed candle confirmation or not. We prefer closed and waited for the 5 minute to give us just that before entry.
- Be willing to take a second shot if wrong on the fade. Fades fail more often than not but a solid fade can produce 3:1 or better, the math works but only if your plan allows it.
- Volume is always helpful to show potential ending spots but as M shows it is not required.
- Conviction is a must, not a maybe.
As always, only look to add the fade play to your playbook if your plan allows. When building a plan, strategies like this can work extremely well and can be steam rolled. You have to understand your timeframes, the market, and your specific goals.