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Absorption

I was reading a guide but still don't understand exactly how absorption is calculated and what it means? Can anyone explain me with an example please?

Absorption as the name suggest is absorption of aggressive orders by the limit order that are placed.


for example, say a person punches a Market order of say 1000 qty to buy and the complete order is absorbed by sell limit order and still the price struggles to go up. At that time, we will say that absorption of 1000 qty has been done by limit orders. 


The Absorption % is basically how much  difference should be in buyers and seller side in agrressive orders . Say absorption % is 100 then the buyers will be double of sellers then also the price fails to go up. then absorption resistance line comes at that point.


Hope it help.feel free to ask


5 people like this

A well-put example thanks, What are some recommended settings for  Absorption % and does it differ based on the given asset traded or respective time frame? 


Great example

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