Intraday Exhaustion...And How I Plan To Trade It

What Is Exhaustion?
Exhaustion is a situation in which a majority of participants trading in the same asset are either long or short, leaving 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 to which 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.

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 up or down respectively.

When this happens, traders can expect a trend reversal. Suddenly, buyers seats are filling up with sellers, or vice versa.

Excessive volume can also indicate an impending reversal, as the massive volume spike typically means everyone who wanted in got in.