ZoneTraderPro

The ZoneTraderPro Exhaustion Trade

Next you need to look at creating a plan to take this trade. The statistics developed so far have shown that the trade has a high probability of success.

ZoneTraderPro provides you a ZIP file to study the exhaustion trades. The zip file contains pictures of all of the trades, and an excel worksheet of the trades. Marked on the pictures is what the TICK values were when you had to make a trading decision. The link to the ZIP file and an explanation of the Excel columns can be found here.

One of the reasons for the high risk reward is the ZoneTraderPro TICK filter strategy. The ZoneTraderPro TICK strategy eliminates a large number of losses. It does eliminate a smaller number of wins. But by eliminating more losses than wins, you will increase your confidence in taking this trade. These trades occur after very strong moves up and down. Because of this, they can be a hard trading decision. So how do you make the decision? You develop a trading plan for this trade, based on what the pattern has done in the past.

Developing A Trading Plan For The Exhaustion Trade

Developing a trading plan for any trade is important. If you base your decisions on logic and reason, and on past experiences, you will not improvise when you see an unusual pattern develop from this trade. This is why ZoneTraderPro provides the ZIP file with pictures of all of the trades.

The 1st part of your trading plan is to examine the TICK strategy. Currently, with 450 trades charted, the TICK strategy eliminated 60 trades or about 13%. 30 of 60 or 50% were losing trades. 2 of the 60 filtered trades were break even, and only 28 wins were filtered out. 53 of the remaining 390, or 13% of the trades were 1 point losers. These numbers will change as more trades are added to the database in the future.

There were 390 tradeable entries, which resulted in 318 trades that were wins, with at least 6 ticks of favorable excursion or more. That is a 81.5% win rate for all of the trades the filter did not exclude. The 53 losses represent a 13.3% loss rate.

Included in the Excel worksheet and on the pictures of each trade are the TICK values. Several of the losses occurred at the end of the day or with extreme tick readings.

The exhaustion trade pattern also occurs in the pre-market, however you will not have the TICK available as a tool. You may want to consider avoiding trades in the pre market, as you have no way to gauge the strength and momentum without the TICK.

Profit Targets and Stop Losses

Next we should look at profit targets and stop losses. Look at the Excel worksheet. Generally you will get 2 or more points from the trade. Profit targets can be set at the Trend Zone where the market should trade to. Placing a target higher than the Trend Zone will result in fewer winning trades. You should examine all of the historical trades' pictures to determine where you place a profit target.

Generally you should place a stop about 4 ticks from the trades' entry point at the Trend Zone. Remember where you enter the trade is irrelevant. The only thing that is relevant is the statistical entry point for the trade. In a short trade it is the bottom of the Trend Resistance Zone.

For a long trade it is the top of the Trend Support Zone.

One of the keys to the success of this trade is the low risk that you take. If you do take a trading loss, the loss is only one half of what your expected profit will be. The reason you want a tight stop is that since the market did reverse from a minor zone, a strong trending movement is a real possibility. Fortunately only a small number of trades do continue to a strong trend zone and a loss.

The theory behind why the exhaustion trade is so successful is because the market has found support/resistance on the previous strong move. The people with moving average and stochastic's systems re-enter the trade on the first pullback, and they end up being the bag holders when the market exhausts the move. The ZoneTraderPro users' profit by having the real time low risk pattern to take the other side of the trade.

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