What absorption means

For example, imagine big sellers hitting the market again and again. Normally, price would fall. Yet price stays flat. So where did all that selling go?

In fact, someone with large limit orders bought it all. In other words, a big buyer absorbed the selling. Once the sellers run out, price often turns up fast, because the buyer is still there.

Of course, the same works in reverse. For instance, heavy buying at the top of a move with no new high often means a big seller is absorbing it.

How absorption looks on a chart

Trading Armour marks absorption for you. First, it checks each candle for a large block of orders at its high or low. Then it compares that block with normal activity on the coin.

• Buying absorption: a big block of sells at the low of a down candle, and price holds.
• Selling absorption: a big block of buys at the high of an up candle, and price stalls.

Also, big order bubbles help you see it live. When large bubbles hit the same level and price refuses to move, you are watching absorption happen.

What an absorption candle looks like

An absorption candle is the single candle where the big orders hit and failed. So it is the candle to watch, and the one your stop is built around.

• Long wick: price pushed through a level, but it closed back inside.
• Heavy volume: much more than the candles before it, yet the body stays small.
• Opposite close: after heavy selling, the candle closes near its high, or the reverse.

In other words, effort was high but the result was small. Therefore, the next candle often moves the other way. Still, wait for that next candle to confirm before you act.

An absorption trading setup step by step

1. Wait for price to reach a clear level, such as a prior low or VWAP.
2. Next, watch for big orders hitting that level without a breakout.
3. Then wait for the candle to close back inside the level.
4. Enter only when a closed-candle signal agrees with the turn.
5. Finally, place the stop beyond the wick of the absorption candle.

The stop placement matters most. Because the big player defended that level, a break below it means the idea failed. So the stop sits just past it, with a small buffer for wicks.

When absorption trading fails

Still, absorption is a clue, not a guarantee. Sometimes the big buyer simply finishes and leaves. Then price breaks the level and keeps going.

So watch for three warning signs:

• The level gets tested again and again, and each bounce is weaker.
• Bitcoin is falling hard while you try to buy an altcoin.
• Moreover, the absorption sits in the middle of a tight range, where stops get hunted.

In those cases, skip the trade. Another clean setup will come.

Absorption trading and stop hunts

Absorption often appears right after a stop hunt. For example, price dips below an obvious low, triggers the stops, and big buyers absorb the panic selling. Then price snaps back up.

As a result, this is one of the cleaner setups in crypto. Our guide to stop loss hunting explains why stops cluster there, and our crypto liquidation levels guide shows where forced selling happens.

Learning to read absorption

At first, absorption is hard to see. So use replay. Rewind a busy chart, find a sharp turn, and look at the orders just before it.

Over time, the pattern becomes familiar. Meanwhile, keep your size small until you have logged at least twenty trades. Also, start with the basics in our crypto order flow indicator guide, and read about candlestick patterns for more context on wicks.

Absorption trading FAQ

Is absorption trading good for beginners?

It can be, once you know the basics of order flow. Start in replay, keep your size small, and always place the stop beyond the absorption candle.

Does Trading Armour mark absorption automatically?

Yes. It checks each candle for a large block of orders at its high or low, compared with normal activity on that coin, and marks it on the chart.

Where should the stop go?

Just beyond the wick of the absorption candle, with a small buffer. If price breaks that level, the big player has stopped defending it.

What is an absorption candle?

It is a candle with heavy volume and a long wick that closes back inside a level. Big orders hit, but price refused to move, so a large player absorbed them.