Trading concept- Absorption of Supply 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 concept:
1. Whenever the price keeps approaching a certain level, there are pending sell orders that are waiting to be filled.
2. Every time the price comes back to this level, a certain amount of orders gets filled. This is called absorption.
3. The more the price approaches that level, the lesser the unfilled order remains.
4. Ultimately all the orders get absorbed and we see a breakout from that level.
Example:
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
