Volume + EMA(20) Overlay | Absorption & Exhaustion Detector

🧠 Overview

This indicator combines Volume analysis with a 20-period Exponential Moving Average (EMA) applied directly to the volume histogram, allowing traders to easily detect absorption and exhaustion in market behavior.

It’s inspired by order-flow and smart money concepts, helping scalpers and day traders (especially on assets like Gold / XAUUSD, indices, or crypto**) spot areas where large participants are entering or exiting positions.

⚙️ How It Works

The indicator plots:
Red/Green Volume Bars:
Green = Bullish candle (close ≥ open)
Red = Bearish candle (close < open)
Grey EMA(20) Line:
Smooths the volume to show the “normal effort” threshold.
Blue Triangle (Absorption):
When volume is unusually high but candle size is small — shows strong absorption (buyers or sellers getting absorbed).
Yellow Triangle (Exhaustion):
When volume is low but candle size is large — shows weakening momentum (trend exhaustion).

🎯 Trading Logic

Behavior Meaning Possible Setup
🔵 Absorption (High Vol + Small Candle)
Meaning: Institutional absorption, potential reversal.
Possible Setup: Wait for confirmation candle in opposite direction
🟡 Exhaustion (Low Vol + Large Candle)
Meaning: Trend losing steam, fake breakout likely
Possible Setup: Prepare for retracement or exit partials

🕒 Best Timeframes

Works across all assets and timeframes, but performs best for:
Scalping or day trading: 1m – 15m
Swing confirmation: 1h – 4h

💡 Ideal Pairings

Combine with:
VWAP for directional bias
Cumulative Volume Delta (CVD) for confirmation
Fixed Range Volume Profile for confluence zones
ICT Killzones to trade only in high-liquidity sessions (London / New York)

🔧 Settings

EMA Length: 20
Bar Colors: Green/Red by candle direction
EMA Line Color: Grey
Absorption & Exhaustion Markers: Enabled by default (optional visual cues)

🧩 How to Read It

When volume rises above EMA(20) → strong effort from market participants.
When price moves a lot but volume stays below EMA(20) → fake move, trend losing power.
When high volume with no price progress → accumulation or distribution by large players.

🧰 Script Details

Language: Pine Script v6
Overlay: No (separate panel under chart)
Compatible: All symbols and brokers

⚠️ Disclaimer
This script is for educational purposes only and should not be considered financial advice. Always confirm setups with your own strategy and risk management rules.