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Exhaustion_Gap

Exhaustion Gap Forex Pattern

Exhaustion gaps may occur at the top or bottom of a formation when trends change direction in an atypically quick manner. There is no consolidation next to the broken trend line: The trend reversal is very sharp through a bullish move, looks a lot like a measurement gap.

So traders buy the currency and stay long overnight on that assumption. The following day the market opens below the previous low, generating a second gap. If the second gap is filled or does not even occur, the trading signal remains the same.

Exhaustion_Gap

Traders do not have to get caught badly in this exhaustion gap. A sudden trend reversal is unlikely to occur in an information void.

Some sort of identifiable event triggers the move—maybe a government fall or a massive and well-timed central bank intervention. Therefore, the traders should at least be warned.

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