What Is Absorption?
Absorption occurs when large resting (passive) orders at a specific price level repeatedly fill incoming (aggressive) orders without price breaking through. The aggressive traders keep hitting the level with market orders, but a large participant keeps replenishing buy or sell limit orders, "absorbing" all the selling or buying pressure. Price stays at the level despite heavy volume.
How Absorption Works
Absorption is visible on the tape (time and sales) as: high volume at a single price level, the price failing to move despite aggressive selling (or buying), and the order book depth at that level staying constant or growing even as it fills. The absorbing entity is typically an institution or market maker building a large position at their target price.
Why It Matters for Traders
Absorption is one of the most reliable order flow signals because it reveals the intent of large players in real-time. When you see heavy selling being absorbed at a support level (high volume, no price decline), it signals strong institutional buying that will likely result in an upward move once the selling is exhausted. The entry is after the absorption completes and price begins to move away from the level, with a stop below the absorption zone.
