Just to clarify, I have a question. I will describe how I understand absorption, correct me if I am wrong please: So an absorption can basically lead to 2 different outcomes depending on what kind of limit orders prevail at a given level: - 1) A continuation of a trend (and possibly even empowering it) - this happens in case that the limit orders are in congruence with the current trend. Example: The price is going steadily DOWN, and it hits a big load of limit orders (liquidity) that are mostly SELL LIMIT ORDERS => the price goes DOWN EVEN QUICKER. - 2) A reversal of a trend - this happens in case the limit orders are against the current trend. Example: The price is going steadily DOWN, and it hits a big load of limit orders (liquidity) that are mostly BUY LIMIT ORDERS => what follows is a brief "defense" of a given price level and subsequently the price reverts UPWARDS. Do I understand it correctly? Thank you in advance for your answers. 🙂 (A subsequent question: I just watched another video in which a guy explained that there are two types of absorption - an "exhaustion absorption" and a "momentum absorption" - are those two types essentially what I described above? Or are these two types nonsense?)
Exhaustion is the lack of aggressive volume activity -- those traders entering with market orders. No interest by aggressors, then look for a mean reversion trade and/or trend continuation.
Just to clarify, I have a question. I will describe how I understand absorption, correct me if I am wrong please:
So an absorption can basically lead to 2 different outcomes depending on what kind of limit orders prevail at a given level:
- 1) A continuation of a trend (and possibly even empowering it) - this happens in case that the limit orders are in congruence with the current trend. Example: The price is going steadily DOWN, and it hits a big load of limit orders (liquidity) that are mostly SELL LIMIT ORDERS => the price goes DOWN EVEN QUICKER.
- 2) A reversal of a trend - this happens in case the limit orders are against the current trend. Example: The price is going steadily DOWN, and it hits a big load of limit orders (liquidity) that are mostly BUY LIMIT ORDERS => what follows is a brief "defense" of a given price level and subsequently the price reverts UPWARDS.
Do I understand it correctly? Thank you in advance for your answers. 🙂
(A subsequent question: I just watched another video in which a guy explained that there are two types of absorption - an "exhaustion absorption" and a "momentum absorption" - are those two types essentially what I described above? Or are these two types nonsense?)
Wow, this is so clear!!!
I am wondering how dark pools effect the significance of these information where you can not see their orders in official order book ... ?
Nice Video!
But what is Exhaustion ?
Exhaustion is the lack of aggressive volume activity -- those traders entering with market orders. No interest by aggressors, then look for a mean reversion trade and/or trend continuation.
@@Bookmap_pro Thanks. And, what's about absorption definition?
@@paolo357 I think absorption means taking the liquidity away
@@samzhao1684 Thanks ;)
@@paolo357Absorption is the price defense, the market braking the price. Lots of aggression and little results... = Defense