Video Transcript:
Hello everyone, it’s Dale here. In this video, I want to show you my most favorite order flow setup and how I use it to confirm my trade entries. The logic behind this setup is based on following the footprints of the big players and spotting what they are up to when the market hits a key level. Let me show you how it works. Absorption is when unusually heavy volumes appear on the bid and also on the ask at the same time. That means that buying or selling pressure is being absorbed. I’m using a five-minute or a 30-minute chart for this. Preferably, I would say the five-minute — I use it more on the five-minute chart.
So if you look here, this is an example where buying activity gets absorbed. The price was going up, then probably hit some resistance here, and unusually huge volumes were traded both on the bid and ask. It’s important that the heavy volumes are both on the bid and on the ask. All right, so we have heavy volumes on the bid and ask. This means the market is absorbing the buying pressure, and eventually the buyers run out of fuel, sellers take over, and the price goes down. So this is buying activity being absorbed.
If you look at the next picture here, then the price goes down and there is this high volume node with heavy volumes both on the bid and ask. This means that selling activity is being absorbed here. Sellers are selling and pushing the price downward, but at this level buyers step in and start to buy everything the sellers have to sell. That’s why the price stops moving, and from this place eventually the sellers run out of fuel, buyers take over, and the price goes up. So that’s absorption — the market is absorbing buying or selling pressure.
A very important thing is that this needs to appear in a support or resistance zone, not just anywhere. If you see a heavy volume node like this at a random place on the chart, it doesn’t really mean anything. It’s absorption only if it appears around a strong support or resistance level. This resistance level could be based on Volume Profile, price action, VWAP, or FIBO, or whatever you like to trade, but it needs to appear around a strong support or resistance level, and it is confirmation that the level is going to work.
Here is the first example. Imagine that there was a resistance here. By the way, resistances and supports are not just lines — they are always areas. Imagine that we had a strong resistance here and the price is reaching that resistance. When it reaches this resistance area, you see unusually huge volumes both on the bid and ask. It doesn’t need to be at one volume node or in one cell in the footprint. It could be spread across multiple cells. Actually, it is more often spread over multiple cells. If you spot unusually huge volumes both on the bid and ask around the support or resistance zone, then it is absorption.
I don’t have an exact definition of “unusually huge volumes,” but what you can do is look at the chart and compare it with what’s going on nearby. Compare the typical volume. For example, here we have 962 contracts on the bid and 789 contracts on the ask. If you look around, can you find volumes like that nearby? No way. So this is unusually huge volume activity, and that’s absorption. In this case, buyers are pushing the price up, but sellers start selling there. They are absorbing the buying pressure, and that’s why the price goes downward. Again, this needs to happen around a resistance zone. Otherwise, it would not give strong confirmation and would not mean that much.
Here’s another example. Again, imagine we have resistance here — this whole area is resistance. When the price reaches that resistance, you notice unusually huge volumes both on the bid and ask. You can compare the volumes in this block with volumes in nearby areas — they are nowhere close to the volumes in this high-volume absorption area. This tells you that sellers are absorbing buying pressure. Eventually, the buyers run out of fuel, sellers take over, and it is a signal for you to go short from there. It is a signal that this resistance is going to work.
Here’s a third example of absorption. Imagine we have strong support here. It could be based on anything. I like to base it on Volume Profile, but it could be whatever you prefer, for example a price action setup. The price reaches that support zone, and unusually huge volumes start to appear, especially in this high-volume node — 549 on the bid and 359 on the ask. This is out of the ordinary if you compare it with nearby areas. Something unusual appeared at that support. This tells you that buyers are buying everything the sellers had to sell there. That’s why the price stopped, sellers ran out of fuel, buyers took over, and the price went up. This is confirmation for you to go long from this support.
I hope you enjoyed the video. If you want to get my custom-made order flow software and also my order flow training, head over to my website, trader-dale.com. Click the Trading Course and Tools button and it will take you to the page where you can get the order flow pack. There you can learn everything about order flow trading from A to Z and get my custom-made software. You can also scroll down and get all my educational software and courses in one bundle for a heavily discounted price. Thanks for watching, and I’ll see you next time. Until then, happy trading.
Comments
Post a Comment