TT – Exhaustions Holding
Note: for all components of the TT chart please check first the Tick-Tools Map article
An exhaustion is an emotional event in which buyers/sellers go all-out and exhaust themselves. Normally that creates a vacuum which pushes price in the opposite direction. An Xtick is an even stronger emotional event, the strongest one occurring in the last 20 years. So if an Xtick also triggers together with an exhaustion, that reinforces the signal.
The text-book reaction one expects at an exhaustion is initial reaction in the opposite direction (so if a buyer exhaustion is generated - reaction down), then a back-test followed by a bigger move. Most times a back-test is happening, but if the exhaustion occurs at the end of a very steep move or blow-off, it is possible that no back-test happens.
Below is an example of a day in which the signals were very clean and you can see the text-book reactions to the exhaustions.
At point 1, immediately after the market opened, a BE with an Xtick was generated. The reaction was very strong and this BE never got a standard back-test, price moving lower and having just a small bounce stopped at the danny line. After a close to 20 points decline, the price whipsawed a bit at the maginot line before spiking below it, at which point a SE was triggered.
At point 2, we can see that the SE did trigger the standard reactions. Initial bounce, back-test (which stopped at the maginot line, which was very close to the SE) followed by another move higher. Price was unable to break away above the danny line and came back down to re-test the maginot line and SE and at the attempted break-down a 2nd sequential SE was triggered.
At point 3, we can see a 2nd sequential SE (a consecutive exhaustion very close to the price of the 1st one). This type of event has very high odds of holding as is a good R/R trade entry. In the example, we can see that this one was no exception. It had the initial reaction (stopped at the danny line again), then text-book back-test, after which it recovered the maginot line and then whipsawed a bit between the maginot and the danny line. After it finally managed to break above and hold the danny line, the trend was clearly up and the market never looked back.
At point 4, we also see a text-book breakout happen. Normally the exhaustion level is relevant also after the initial reactions to it, meaning later in the session, however when it is later tested like we had in this example, it is a “make or break” type of situation. It either holds and price is rejected there, or it’s broken out and price continues its trend. In our case, the price had serious upside momentum having had won the maginot, danny and 400bar MA and also DFI having broken above the 0 level. So a breakout was more likely than a rejection. And that is what happened. Price broke through it almost directly, consolidated a bit above, then had a very clean back-test which held and then proceeded higher. Later we see that yet another SE was generated which pushed price higher even further (again with a big initial reaction, with a back-test occurring later than usual.