Exhaustion Trading Pattern
The ZoneTraderPro Exhaustion Trading Pattern is a pattern that usually occurs after a strong market move without any retracement. This first retracement is the opportunity for retail traders to enter the perceived trend. Unfortunately for them the program trade that started the trend is over. The market found value and profit taking has started.
In the below picture the trade occurs after the market open. The first exhaustion trade occurs on the open and would be avoided as there is no prior TICK information. The TICK opened strong at 630. However as the market trades into the second exhaustion trade there is a TICK divergence, the market tops, and this leads to a successful exhaustion short trading pattern.
The exhaustion trading pattern also does an excellent job at calling a market tops and market bottoms. In the below described picture we see the exhaustion trade marking both a market bottom and a market top. The suggested stop loss of 4 ticks of risk is also illustrated in the picture. Also note the TICK divergence on the market top.
Importance of the ZoneTraderPro Theory
Here we see three successful consecutive trades with starts with the exhaustion trading pattern. After the exhaustion, we have an exhaustion trend trading pattern and a trend trading pattern. In those series of trades we see lower TICK lows and lower TICK highs.
What is the most important feature for users of ZoneTraderPro is the ability to use the zones and the statistics behind the zones. All three trades end at the blue counter trend zone. The statistics indicate that 50% of the time the market will not trade into the blue zone. So if the target was set one tick short of the blue zone, there would have been three successful trades. If the profit target had been set lower, you lost at least 6 ticks and were not able to re-enter the trade and take its' full profit.