Trading concept- Absorption of Demand

2021年7月15日

Myth: If the price approaches a level repeatedly, and gets rejected from it, this means that the level is very strong.
Reality: After each touch, the level becomes weaker and weaker due to the absorption of the residual orders.

Underlying logic:

1. Whenever the price keeps approaching a certain level, there are pending buy orders which are waiting to be filled.
2. Every time the price comes back to this level, a certain amount of orders gets absorbed.
3. More the price approaches that level, the lesser unfilled order remains.
4. Hence, ultimately all the orders get absorbed and we see a breakout/breakdown of that level.

Disclaimer: This is NOT investment advice. This post is meant for learning purposes only. Invest your capital at your own risk.

Happy learning. Cheers!
johntradingwick