Fading the first spike after news is popular, and it fails in a specific way

[Shadow Trader]

The pattern is well known. A release hits, price spikes thirty pips, and then retraces half of it within a minute. Fading the spike looks like free money on a chart of past events.

The failure comes from the events that don't retrace. When the number is far from forecast, the market can run in one direction for hundreds of pips. A fade strategy that wins on twenty events and loses everything on the twenty-first is a classic risk profile.

Execution adds to the problem. Entering a fade means selling into a spike with a wide spread and a stale quote, and the stop gets hit with the same poor liquidity.

Some traders reduce the damage by waiting for evidence that the move has stalled, such as two consecutive bars failing to make a new extreme. Others limit the fade to events where the surprise is small, since a small surprise is less likely to start a trend.

Whichever version is used, the stop has to account for the worst case, not the typical one.

Past events aren't a guide to the next large surprise. They only show the middle of the distribution.

How has the fade strategy handled the outlier events, the ones that kept going?