ZoneTraderPro uses patterns to identify trades. When ZoneTraderPro was first developed, the pattern that defined as a high risk trend trade was known. The logic behind the exhaustion trade is that the high risk trend trade has a high probability of failing.

A high risk trend trade develops when the market breaks the strong trend pattern. The reason this trade is a high risk is that a significant number of them are losers, because of the broken pattern.

Below is an perfect example of an exhaustion pattern. The first part of the pattern is the reversal from minor support. The market trades to trend resistance and you see an exhaustion trade. Next the market trades into a high risk trend long trade, that has 5 ticks of adverse excursion. The high number of adverse excursion ticks suggests that the trend trade will fail.

This sets us up for a reversal trade when the market comes back to intermediate resistance, as the dumb money is buying the first pullback, after a strong bull move. The smart money, and ZoneTraderPro, recognizes that profits are being taken, and the market is now bearish.

What is more common, as in the pattern below, is that the market trades to the light blue trend support/resistance level. After reversing at the trend zone, the market trades into a high risk trend trade.

The most commonly asked question is how do you determine if you will have a test of a low, or if the market will trade to a trend zone.

The answer is that generally when the market tests a previous high/low at the intermediate zone, there will be several bars that trade at the zone, as in the 1st example. In the second example, the market went through intermediate resistance so fast, the zone was only 1 bar wide.

The second part of the answer is to look at the ZoneTraderPro TICK strategy. In the example below, the ES was at trend support at point number 1, as the TICK was at its' low. The ES traded slightly lower for two minutes while the TICK went from a low of -701 to a high of 3 at point 2. Clearly there was buying at this level.

In this example, if you were to trade it, you would accept additional risk trading from the 932 level, because the market could trade to 930.75 and the pattern would still be intact.

In this is trade you are also faced with another problem. What do you do when the market traded into intermediate resistance and then back down to 932.00? The answer in this case was simple. You look to the ZoneTraderPro TICK strategy.

The TICK made a higher high when it traded into intermediate resistance. The previous high was 482 and as it traded into intermediate resistance it was 702. Next, as the market traded into the test of 932.00, the TICK was a higher low. The previous low was -782, and the low on the test was -440. Both of those numbers are what you want to see to increase your odds of a winning trade. Profit was then taken at the trend resistance level.

Less than 10% of the trades that have been statistically charted, have this problem of coming back and testing the original entry point. However, because it does happen, this trade is an excellent example of trade management and having a trading plan, so that you do not have to improvise a plan as it occurs in real time.