Based on the many emails we receive about this, there is a requirement to get a proper understanding of how exhaustion candles work, what they mean and when they’re relevant. In the webinar in the video below, Navin Prithyani will go into details with many examples of when an exhaustion candle / pin bars are relevant.
What are Exhaustion Candles?
An exhaustion candle is a very important indicator of a reversal of a trend. It is sometimes also called a hammer and it is named like this, because the market is attempting to hammer out a market bottom (if it is a downtrend).
How to recognise an exhaustion candle: it appears during a trend (either up or down) only. The body of the candle has a long tail or wick – at least 2-3 times the length of the body and little if any tail or wick on the other side. The colour of the body does not matter as much.
How you can use Exhaustion Candles
Exhaustion candles are not to be used as a leading indicator to enter a trade solely based on them. There is however, a huge amount of information embedded in them. They give some clues as to what is happening in the market and what the current sentiment is. They can be an indication that the trend is stalling or even reversing. However, as said, it’s just an indication and nothing more. So we need more confirmation than that.
Firstly we need the exhaustion candle to be, or occur in the right place in your charts. So for instance you want to see them bouncing at round numbers, pivot points or recent highs and lows. Our Pro Trading Forex Strategy for instance, uses exhaustion candles as a tool to determine entry. Never look at these kind of technical tools as more than tools. As mentioned often by us, we need the story to match our technical side of things. This is something we extensively dig into in the Forex Watchers members courses.