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.
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.
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
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
1M-5M for absorption identification, 15M-30M for exhaustion patterns
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.
Delta is the difference between aggressive buying volume (market orders hitting the ask) and aggressive selling volume (market orders hitting the bid) within a candle or time period. Cumulative delta tracks the running total over time. Divergence between price and cumulative delta reveals whether rallies/selloffs have genuine buyer/seller conviction.
Time and sales, commonly referred to as the tape, displays every executed trade in real time, showing the price, size, and whether the trade was executed at the bid or the ask. Tape reading is the art of interpreting this flow of transactions to gauge real-time buying and selling pressure, identify institutional activity, and spot absorption or exhaustion before they appear on charts.
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.
The Depth of Market, also known as the order book ladder, displays all resting limit orders at each price level above and below the current market price. DOM analysis reveals where institutional participants have placed large orders, helping traders identify genuine support and resistance levels created by actual liquidity rather than historical price patterns alone.