Numbers Bars allow us to highlight buying and selling imbalances – the actions of ‘aggressive’ traders hitting the bid or lifting the ask price and we make trading decisions according to the presence, quantity and location of these imbalances. The actions of ‘passive’ traders with limit orders however can be as revealing. Retail traders sometimes look at the DOM with a sense of mystery and a belief that identifying ‘spoofing’ and ‘iceberg’ or hidden order activity provides a key to success. In fact, the traded volume tells us everything we need to know by showing us what has happened and as importantly, what has not happened.
If large volume trades at a given price but price does not continue in the same direction, it tells us that the market orders trading at that price are being absorbed, i.e. there are large traders who are willing to absorb any amount of buying or selling at the price level in question. That is as important, if not more so, than the presence of a buying or selling imbalance. The emoji trading Absorption at Extreme and Absorption Sequence indicators help to identify absorption and highlight what is not happening providing the insight to avoid being on the wrong side of more powerful traders.
When absorption occurs at the extreme of a price bar and the bar direction opposes the price action leading up to this bar, there is a strong indication that high volume traders are defending a price level and can trade with sufficient volume to cause the previous move to stop and potentially reverse.
Absorption at Extreme may be licensed for Sierra Chart on a Lifetime, 1-month or 3-month basis, or as part of the complete Emoji Trading Order Flow Suite. Licences include all indicator updates and enhancements during the license period.