If you also feel so then it is time to make some serious amendments in your plan. Thus an exhausting trading day can often be a blessing in disguise for traders.

If your trading aims or goals seem achievable then you can reconstruct them to make them realistic. After all, you are not Alice in wonderland. Therefore you cannot live in Utopia while Forex trading. Ahsan is an accomplished professional in the field of accounting and finance He has worked as an analyst of stock exchange at an investment company. In he started as an independant consultant for trading Forex online and managed some big accounts.

As an independent contributor, he writes about Forex trading for many business magazines. He has written several books covering topics related to technical analysis. Save my name, email, and website in this browser for the next time I comment. Top Posts GBP Q4 Forecast — Expect interest rate hike. Is Forex Legal? A Hurdle for Novice Traders. Trading on Forex News, Arena of Vigilant Traders:.

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Forex Psychology. by Ahsan Aslam Khan October 21, written by Ahsan Aslam Khan October 21, But, eventually, the sellers overwhelm the buyers, the buyers turn into sellers, and the price falls dramatically.

Exhaustion on a small scale occurs on every price wave. The price moves up or down—and then has a pullback. It occurs on one-minute charts with small trend reversals and pullbacks, and it occurs on longer-term weekly and monthly charts in regards to large trends. Technical traders view uptrends as a series of rising swing lows and swing highs. Lower swing lows and lower swing highs indicate the uptrend could be in trouble and a reversal may be underway.

A downtrend is a series of lower swing lows and lower swing highs. Higher swing lows and higher swing highs could indicate a reversal to the upside.

Exhaustion cannot be identified by simply looking at a price chart. Traders look to other metrics, such as volume and the Relative Strength Index , to confirm whether a market is over- or under-sold. The following chart shows that Nvidia Corp. NVDA was in a prolonged uptrend before the stock was exhausted and reversed to a significant degree.

During the rise, the price was making overall higher highs and higher lows and, in this case, respecting a rising trendline. The price then drops below the trendline and also made a lower swing low, followed by a lower swing high. The reversal has started and the price continues to drop as sellers overwhelm any buyers that are remaining.

Volume dropped through much of the rise, showing that there was less and less interest at the higher and higher prices. This was a warning sign of upcoming exhaustion; typically, volume help confirm price moves—rising prices are accompanied by rising volume on the moves up. Excessive volume can also indicate an impending reversal because the massive volume spike typically means everyone who wanted to buy was able to buy.

This scenario is more common in blow-off tops. The Nvidia case was not a blow-off top, rather it was a steady uptrend that progressively had less interest. When sellers started to become more aggressive, there were not enough buyers to support the price, even as the price got cheaper and cheaper.

In the financial markets, exhaustion is a situation where the majority of traders trade in the same side of the transaction either short or long and the same asset.

As a result, there are only a few traders on the other side of the transaction. If exhaustion is a market that is strongly tilted towards buyers or sellers, the opposite circumstance could be described as sideways drift. This is when the price of a security or other asset continues to trade between support and resistance levels, without any strong breakout movements in either direction.

In most cases, the market is approximately evenly balanced between long and short players, with sell and buy pressures approximately equal. Day trading is the practice of attempting to profit from short-term swings rather than long-term trends. It tends to be unprofitable in the long run, due to both the difficulty of predicting market movements and the accumulating costs of trading.

On average, even the best stock pickers tend to underperform the market, and even a marginally-profitable day trader would lose much of their profits to broker fees and commissions. For that reason, most experts advise long-term acquisitions over short-term day trading. An exhaustion gap is a downward break after a long period of price gains, or an upward break after a long sell-off. This is usually considered a sign of a trend reversal, although this signal is sometimes only easy to identify in hindsight.

Since exhaustion gaps indicate the beginning of a trend reversal, a confident trader would purchase the asset if they believed the market was oversold , and sell or short the asset if it were overbought.

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Exhaustion is a situation in which a majority of participants trading in the same asset are either long or short, which leaves few investors to take the other side of the transaction when participants wish to close their positions.

For example, if everyone has already bought, when those people want to sell, there will be no more buyers to sell. This will cause the price to fall. Exhaustion often signals the reversal of a current trend because it illustrates excess levels of supply or demand, indicating a market is either overbought or oversold.

Exhaustion implies a state or condition that is difficult to fight: Surrender to the inevitable is imminent. The same goes for exhaustion in the financial markets , which is based on auctions. At an auction, there are bidders and sellers. The former are bidding on an asset or security to buy, and the latter is offering a price for buyers. When there are more aggressive buyers than sellers, the price goes up. Likewise, when there are more aggressive sellers, the price goes down.

A trend is exhausted when the price of the asset or security has moved too far in one direction. This may occur when the number of buyers in the auction dwindles and sellers start to take over. Exhaustion is reached when the asset or security does not have the support from buyers or sellers to continue moving either up or down. Traders can identify periods of exhaustion by looking at the Commitments of Traders Report. This report is published every week and shows position levels in the futures markets.

An excessively high number of long contracts could indicate that everybody who wishes to be long has already taken a position, leaving few investors to keep buying the asset at current prices let alone higher prices. If there is likely no one left to buy, then sellers will start becoming more aggressive to get out of long positions or get short. Blow-off tops are an extreme example of exhaustion.

The price has been rising aggressively on increasing volume. But, eventually, the sellers overwhelm the buyers, the buyers turn into sellers, and the price falls dramatically. Exhaustion on a small scale occurs on every price wave. The price moves up or down—and then has a pullback. It occurs on one-minute charts with small trend reversals and pullbacks, and it occurs on longer-term weekly and monthly charts in regards to large trends.

Technical traders view uptrends as a series of rising swing lows and swing highs. Lower swing lows and lower swing highs indicate the uptrend could be in trouble and a reversal may be underway. A downtrend is a series of lower swing lows and lower swing highs. Higher swing lows and higher swing highs could indicate a reversal to the upside. Exhaustion cannot be identified by simply looking at a price chart. Traders look to other metrics, such as volume and the Relative Strength Index , to confirm whether a market is over- or under-sold.

The following chart shows that Nvidia Corp. NVDA was in a prolonged uptrend before the stock was exhausted and reversed to a significant degree. During the rise, the price was making overall higher highs and higher lows and, in this case, respecting a rising trendline. The price then drops below the trendline and also made a lower swing low, followed by a lower swing high. The reversal has started and the price continues to drop as sellers overwhelm any buyers that are remaining.

Volume dropped through much of the rise, showing that there was less and less interest at the higher and higher prices. This was a warning sign of upcoming exhaustion; typically, volume help confirm price moves—rising prices are accompanied by rising volume on the moves up. Excessive volume can also indicate an impending reversal because the massive volume spike typically means everyone who wanted to buy was able to buy. This scenario is more common in blow-off tops.

The Nvidia case was not a blow-off top, rather it was a steady uptrend that progressively had less interest. When sellers started to become more aggressive, there were not enough buyers to support the price, even as the price got cheaper and cheaper. In the financial markets, exhaustion is a situation where the majority of traders trade in the same side of the transaction either short or long and the same asset.

As a result, there are only a few traders on the other side of the transaction. If exhaustion is a market that is strongly tilted towards buyers or sellers, the opposite circumstance could be described as sideways drift. This is when the price of a security or other asset continues to trade between support and resistance levels, without any strong breakout movements in either direction. In most cases, the market is approximately evenly balanced between long and short players, with sell and buy pressures approximately equal.

Day trading is the practice of attempting to profit from short-term swings rather than long-term trends. It tends to be unprofitable in the long run, due to both the difficulty of predicting market movements and the accumulating costs of trading. On average, even the best stock pickers tend to underperform the market, and even a marginally-profitable day trader would lose much of their profits to broker fees and commissions.

For that reason, most experts advise long-term acquisitions over short-term day trading. An exhaustion gap is a downward break after a long period of price gains, or an upward break after a long sell-off. This is usually considered a sign of a trend reversal, although this signal is sometimes only easy to identify in hindsight.

Since exhaustion gaps indicate the beginning of a trend reversal, a confident trader would purchase the asset if they believed the market was oversold , and sell or short the asset if it were overbought. Technical Analysis Basic Education. Technical Analysis. Trading Instruments. Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News. Your Money. Personal Finance. Your Practice. Popular Courses.

Technical Analysis Technical Analysis Basic Education. What Is Exhaustion? Key Takeaways Exhaustion occurs when most everyone who wants to be long or short already is, leaving very few people to support or continue pushing the price in the current direction.

This can occur regularly, both on small and large scales. Exhaustion can potentially be identified by looking at the number of participants who are long or short, watching for blow-off tops, or looking for reversals based on swing highs and lows. An exhaustion gap occurs when there is a sharp downward break after prolonged price rises, or an upward break after price losses. In the most extreme examples, a blow-off top can turn sharp price gains into significant losses.

When exhaustion happens, traders can expect a trend reversal. What Is Trade Exhaustion? What Is the Opposite of Exhaustion? What Is the Downside of Day Trading? How Do You Trade Exhaustion Gaps? Compare Accounts. Advertiser Disclosure ×. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

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Related Terms. Swing High Swing high is a technical analysis term that refers to price or indicator peak. Swing highs are analyzed to show trend direction and strength.

The Ascending Triangle Pattern: What It Is, How To Trade It An ascending triangle is a chart pattern used in technical analysis created by a horizontal and rising trendline. The pattern is considered a continuation pattern, with the breakout from the pattern typically occurring in the direction of the overall trend. What Is a Doji Candle Pattern, and What Does It Tell You?

It can be used by investors to identify price patterns. What Are Rectangles? Rectangles are a technical trading pattern in which an asset's price ranges between two horizontal price points, creating a rectangle pattern. Hammer Candlestick: What It Is and How Investors Use It A hammer is a candlestick pattern that indicates a price decline is potentially over and an upward price move is forthcoming. What Is a Bear Trap in Trading A bear trap denotes a decline that induces market participants to open short sales ahead of a reversal that squeezes those positions into losses.

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The same goes for exhaustion in the financial markets , which is based on auctions. High Volatility, Measures for dealing it. This confirms the presence of a bullish exhaustion gap pattern. Ahsan Aslam Khan Ahsan is an accomplished professional in the field of accounting and finance He has worked as an analyst of stock exchange at an investment company. If you manage to spot an opposite gap, or even an island reversal candlestick pattern, then you have the strongest confirmation of the exhaustion gap. What Are Rectangles?

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