Absorption & Exhaustion
Overview
Absorption occurs when large limit orders absorb aggressive market orders without allowing price to move. For example, price hits a level where heavy sell market orders are absorbed by even larger buy limit orders — the aggression is neutralised. Exhaustion is when aggressive buying/selling loses momentum, visible through declining delta and volume at price extremes.
Key Concepts
Absorption: heavy delta on one side but no price movement (limit orders absorbing market orders). Exhaustion: declining delta and volume at trend extremes. Footprint patterns: high volume at a level with no price progress. Absorption precedes reversals, exhaustion precedes pullbacks/reversals. Stacked bid absorption = potential long setup.
Entry Signals
Absorption at a key level (POC, VAH/VAL, prior swing) with delta divergence, Exhaustion after extended trend move (volume climax followed by delta divergence), Absorption visible on footprint as heavy volume at a price with blocked progress, Exhaustion candle: large wick + high volume + delta shift
Exit Signals
Enter on the first sign of price reversal after absorption/exhaustion confirmation, Stop beyond the absorption/exhaustion zone, Target the mean (POC) or value area on the opposing side
Best Timeframes
1M-5M for absorption identification, 15M-30M for exhaustion patterns
Pro Tips
Absorption is one of the most powerful order flow signals because it reveals where large players are defending a level. The key is patience — wait for the absorption to produce a reversal candle before entering.
More Topics in This Category
Order Book & Liquidity Analysis
Order book and liquidity analysis examines the distribution and behaviour of resting orders across all price levels to map where significant liquidity pools exist. By aggregating order book data over time through heatmaps and liquidity visualisations, traders can identify where large players intend to transact, anticipate areas of support and resistance, and gauge market microstructure health.
Footprint Charts
Footprint charts display the actual volume traded at each price level within a candle, broken down by aggressive buyers (market orders hitting the ask) and aggressive sellers (market orders hitting the bid). This granular view reveals exactly where buying and selling pressure occurs, exposing absorption, exhaustion, and imbalance patterns invisible on standard charts.
Volume Profile Analysis
Volume Profile displays the total volume traded at each price level over a specified period (session, week, month, or visible range). Unlike time-based volume histograms, volume profile shows WHERE trading activity concentrated. Key levels include the Point of Control (POC), Value Area, and High/Low Volume Nodes.
Point of Control (POC)
The Point of Control is the single price level at which the most volume was traded during a specified period. It represents the 'fair value' according to market participants and acts as a magnet — price tends to gravitate toward the POC. The naked POC (from a prior session that was never revisited) is one of the most reliable support/resistance levels in order flow trading.