Home - It Helped Us Understand Money, Clean, and Save.

Investing Terms - Fading the Open - Fade the Open

When I read investment columns, such as columnsit coneversation on RealMoney, I often run acros terms that I don't uderstand. Once such term that is often bandied about is Fading the Open. So, what does it mean to fade the open.

Fading the Open

Fading the open involves making trades based on a belief that an initial gap up or gap down at the open (and the quick gain or loss in the same direction immediately following the open) will at least partially retrace itself and that by wating for the move to slow once can open a position that anticipates that retraction. This often occurs because trades placed before the market open are queued and not executed until the open, meaning that there is much greater unmet pent up demand to either buy or sell, often creating an exagerated price swing. Such a strategy does not always work: sometimes the initial move is not retraced, and even when it is, this strategy requires good timing to know when the retractmet is starting.

In order to understant intra-day movements in a stock price, it is useful to uderstand this term, even if you don't plan to follow this strategy yourself.