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In the ever-changing realm of market microstructure, absorption is a fundamental concept that reveals the hidden layers of market dynamics. It occurs when large orders are silently absorbed by the market, a phenomenon that can be detected by combining insights from OHLC data with order flow deltas. This integration allows traders to detect significant liquidity consumption without triggering drastic price shifts. Absorption can occur in two distinct ways: across an entire price swing, where large orders are constantly neutralised to avoid pronounced market movements, or within a single price bar, where the market quickly counterbalances large orders without altering the overall value of the bar.
Understanding these nuances not only deepens the theoretical understanding of market behaviour, but also gives traders the tools to anticipate market moves and fine-tune their strategies effectively.
It is important to emphasize that the content of this post does not constitute a sacred text, nor does its author claim infallibility. Instead, it represents the culmination of thorough study and direct, hands-on market experience. We are fully aware that no system is foolproof; like many other strategies, this approach can be optimally leveraged in the right contexts through careful interpretation and management. Ultimately, the responsibility lies with each trader, who, over time, will learn to adapt and internalize these concepts to suit their individual trading style.
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