The Fading Setup, How It Works

Basically my favorite style of trading is joining on the trend of a slow fade. You barely have any headache and are not scared out of the trade. One of the biggest things to look out for in this "fading" setup is lower highs. Most of the time the stock will put in a base (support) at whole/half dollar marks. Here is an example of a stock today with a fantastic fading setup: http://ift.tt/1K5e1Fj

As you can see, the stock put in a lower high multiple times while holding support. If you want to play it safe wait for it to break first. If you are confident and want a better position, get short anticipating the break and fade. It is pretty common for stocks to fake a breakdown so playing it safe is almost always the better option.

However, things change when the stock is super low float (pretty much lower than 3 million float). Look at GENE, PTBI, and VLTC. They faked out so many times and kept squeezing. When the fading setup occurs on them, try to avoid trading it until it is past 3:00.

OTC example: http://ift.tt/1EBStZa

I have no idea what it is but OTC stocks are so much cleaner. As you can see, it held support then cracked. This crack normally doesn't always mean it will washout, sometimes it will fakeout and that is when you will have to cover. With this stock, it literally followed every trend possible for a huge 10%+ washout!

Stocks tend to really drop when:

• It is breaking a whole/half dollar mark it normally holds

• goes red on the day

• it has been up a lot without much pullback (on the daily chart)

• it breaks past 3:00

• it isn't a crowded trade

• a combination of these things usually makes the drop happen faster.

Good luck!

Submitted May 12, 2015 at 07:44PM by Badbaseball http://ift.tt/1EBSufH