Exhausted Selling Model

AAA

DEFINITION of 'Exhausted Selling Model'

A pricing model used to estimate when the price floor of a security has been reached. The exhaustive selling model uses trendlines, volume indicators, moving averages and various chart patterns to estimate when the price of a security is going to reverse course. This model is most frequently used during periods of panic selling, and is used by investors who are trading based on trends and not necessary fundamentals.

INVESTOPEDIA EXPLAINS 'Exhausted Selling Model'

The exhaustive selling model is best suited for scenarios in which both the price of a security is rapidly falling and trading volume for that security is high. When these two factors are occurring, the likelihood is higher that investors are panic selling, since panic selling may be triggered by short-term events that do not impact the intrinsic value of the security. This model works best when price drops are caused by non-material events, such as a stock being downgraded by an analyst.

A price floor is likely to be reached when a spike in selling order volume that results in a new price low slows down, and is met with increased buy order volume. The predominant downward trendline must also be broken by the price leveling out, and the 40/50 day moving average must be broken and reset.

While the number of indicators used to estimate the price floor are up to the investor, using more indicators typically reduces risk by confirming the likelihood of a price floor across different indicator types. 

RELATED TERMS
  1. Technical Indicator

    Any class of metrics whose value is derived from generic price ...
  2. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  3. Indicator

    Indicators are statistics used to measure current conditions ...
  4. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  5. Smart Beta

    Investment strategies that emphasize the use of alternative weighting ...
  6. Investment Crowdfunding

    Investment crowdfunding is a way to source money for a company ...
RELATED FAQS
  1. How do I profit from using the Exhausted Selling Model?

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. What are the most popular forms of technical analysis?

    The most popular forms of technical analysis are simple moving averages, support and resistance, trend lines and momentum-based ... Read Full Answer >>
  3. What is the difference between technical analysis and fundamental analysis?

    Fundamental analysis and technical analysis are distinct methods used to research and evaluate securities. Fundamental analysis ... Read Full Answer >>
  4. What does it mean to be absolutely risk averse?

    Some people are absolutely risk-averse, which means that they cannot tolerate sustaining any sort of loss, even a temporary ... Read Full Answer >>
  5. How are Tweezer patterns interpreted by analysts and traders?

    The tweezer is a very common candlestick pattern. Theoretically, this pattern is an indication that the current trend has ... Read Full Answer >>
  6. What are some popular mutual funds that give exposure to the drugs sector?

    The pharmaceutical industry has experienced outstanding growth in the 10 years leading up to 2015, consistently outperforming ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    How Market Psychology Drives Technical Indicators

    The tenets of market psychology underlie each and every charting tool.
  2. Technical Indicators

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  3. Trading Strategies

    Adaptive Price Zone Technical Indicator Explained

    In a choppy market, following charts can be extremely difficult - the APZ technical indicator may become your best friend.
  4. Investing

    Top Oil Stocks that Pay Regular Dividends

    Eyeing oil stocks that pay regular dividends? Consider these refinery plays.
  5. Trading Strategies

    Are These the Top Monthly Dividend Stocks?

    Interested in monthly dividends? Here are two stocks to watch.
  6. Investing News

    Investing Early In The Future of Data Security

    Data breaches are becoming increasingly common. Among the foremost technologies paving the path for the future of data security is biometrics.
  7. Investing

    Three Portfolio Moves To Consider Now

    What portfolio moves should you consider making as the 2nd quarter kicks off? Before we focus on the future, let’s first reflect on the 1st Q surprises.
  8. Investing Basics

    Manage Investments And Modern Portfolio Theory

    Modern Portfolio Theory suggests a static allocation which could be detrimental in declining markets, making it necessary for continuous risk assessment. Downside risk protection may not be the ...
  9. Charts & Patterns

    Why These May Be the Top 4 Growth Stocks of 2015

    These four stocks have high upside potential in 2015.
  10. Stock Analysis

    Why the House (and Las Vegas Sands) Always Wins

    An in depth look at how Las Vegas Sands became a multi-billion dollar company.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center