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One of the disadvantages of only looking at a price chart is that you miss out on what actually created a high or low, which ultimately determines what you can expect to see when the market returns to that level. The problem most traders are then left with is simply playing "support" and "resistance" levels with inconsistent results.
On the other hand, the footprint chart allows you to analyse the interactions between buyers and sellers and analyse how a reversal is made.
There are three types of reversals observed on the footprint chart: the key auction reversal, the exhaustion reversal, and the absorption reversal. This footprint trading session with Brannigan looks at the The Exhuastion Reversal.
The main criteria for a successful Exhaustion Reversal are:
1. Change in volume
2. Support and resistance
3. Low volume becomes high volume
The basic theory behind the Exhaustion Reversal is that the whole market ends up on side i.e. long into the high, with lots of activity taking place towards the end of the move. The market then drifts off, which implies that traders are taking profits and putting on speculative shorts - which is different from major sellers entering the market.
The given example is in the GBPUSD Futures on the 22nd and 23rd of August.
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