👉 How to Use Selling or Buying Pressure Exhaustion

⇒ Warning. Any strategy does not guarantee profit on every trade. Strategy is an algorithm of actions. Any algorithm is a systematic work. Success in trading is to adhere to systematic work.

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Exhaustion, drying up – traders can use different descriptions, but the essence does not change. We are talking about a consistent decrease in the activity of buyers or sellers as the price becomes less favorable for them.

When current prices become unfavorable for market participants, they naturally reduce their initiatives. Thus, the classical law of supply and demand manifests itself.

In the following, we will show a few examples, but we must warn that they will not be ideal references. In live trading, there will always be noise and other factors that distort the signal that a professional trader needs to recognize on a chart in order to achieve his goal.

CHART EXAMPLES

To determine the depletion (drying) in the market, the volume indicator and / or its derivatives are used – for example, delta.

The first example is from the futures market for the British pound, the timeframe is 15 minutes. A simple volume indicator has been added to the chart.

An example from the British pound futures market

A consistent decline in volume (1) on bearish candles indicates an exhaustion of selling pressure. There are fewer and fewer willing to sell contracts when the rate falls into the zone of 1.1830 – 1.1840.

The subsequent increase in volumes on bullish candles (2) confirms that the selling has dried up.

Euro futures chart

The arrows show how the sellers’ initiative is gradually depleted as the euro exchange rate falls to parity with the dollar. Further events showed that in the mood of investors there were expectations of an increase in the base interest rate of the ECB (which at that time had been equal to 0% for more than 6 years).

Example 3 demonstrates that the exhaustion signal can also be read:

  • on non-standard chart types,
  • during bursts of volatility.

This is what sales exhaustion looks like on a tick chart (NASDAQ stock index futures) with the Delta indicator. The chart displays the course of trading against the background of the release of important news from the Fed.

Futures on the NASDAQ stock index

The price goes down (1) after the news, but the delta is less and less negative (2).

The subsequent rise in prices and activation of buyers (3) confirms the change in market sentiment. Apparently, the first reaction to the news was erroneous. When the degree of emotions decreased, more and more sellers came to the conclusion that it was becoming unprofitable to sell contracts.

Addition. The examples on the charts above show signals of depleting selling pressure as prices decline. Similarly, the opposite signals of the exhaustion of buying pressure are valid against the backdrop of a price increase, when buyers no longer want to overpay for an asset.

HOW TO TRADE EXHAUSTION SIGNALS?

To increase the efficiency of trading, use the ATAS indicators.

Also, pay more attention to sell exhaustion signals:

  • when the price drops to the support level;
  • within a stable uptrend on the higher timeframe;
  • against the backdrop of strong bullish patterns.

The opposite is true for buying depletion signals.

The example below shows the situation in the gold futures market.

The Guppy indicator (a set of moving averages) is added to show that there has been a significant bearish move in the background, so a rise in prices could end up draining the buying pressure.

And so it happened. As the price moved up to the 1730 level (which served as support the day before), the strength of the bullish momentum gradually dwindled.

An example from the gold futures market

Arrows 1, 2 and 3 show bullish candles, but the volume on them consistently “disappears”. Thus, the ATAS platform indicates that there is a shortage of traders on the market who are ready to buy. It can be concluded that a price reduction is brewing.

By the way, the bullish momentum, marked with the number 3, forms the right shoulder of the head and shoulders pattern . Buying exhaustion can often be read in the formation of this pattern – volume indicators confirm its authenticity.

The following example shows how selling exhaustion led to a breakdown of resistance.

This is a cryptocurrency market, data from the Binance exchange. The ZigZag Pro indicator has been added to the chart , which breaks the sequence of candles into alternating waves of rising and falling prices.

Bitcoin futures

Arrows 1, 2 and 3 point to the exhaustion of selling pressure (a similar pattern is read with ZigZag Pro). Fewer and fewer traders were ready to part with bitcoins – this was a harbinger of a bullish breakdown.

How to start trading exhaustion (drying) signals on the stock exchange

Volume depletion signals are a consequence of the natural law of supply and demand, which is applicable not only on the stock exchange, but also on any other market.

If you see an exhaustion of buys near an important support level, this opens up the possibility for you to open a long position.

To get an advantage in reading market sentiment directly from the price chart and volume confirmation of a rebound, use the indicators of the ATAS platform.

Practice going long/short when enterprising buyers/sellers enter the market after a sell/buy exhaustion signal.

BT

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