Absorption Detector

ABSORPTION DETECTOR -

The Absorption Detector identifies institutional order flow by detecting "absorption" patterns where smart money quietly accumulates or distributes positions by absorbing retail order flow. This creates high-probability support and resistance zones for trading. This is an approximation only and does not read any footprint data.

WHAT IS ABSORPTION?

Absorption occurs when institutions take the opposite side of retail trades, creating specific candlestick patterns with high volume and significant wicks. The indicator identifies two main patterns:

SELLING ABSORPTION (P-Pattern): Red zones above candles where institutions sell into retail buying pressure, creating resistance levels. Look for high volume candles with large upper wicks that close in the lower half.

BUYING ABSORPTION (B-Pattern): Green zones below candles where institutions buy from retail selling pressure, creating support levels. Look for high volume candles with large lower wicks that close in the upper half.

KEY FEATURES

- Automatic detection of institutional absorption patterns
- Dynamic support and resistance zone creation
- Customizable styling for all visual elements
- Historic zone display for backtesting analysis
- Strength-based filtering to show only high-probability setups
- Real-time alerts for new absorption patterns
- Professional info panel with key statistics
- Multi-timeframe compatibility

MAIN SETTINGS

Volume Threshold (1.2): Minimum volume surge required compared to average. Higher values = fewer but stronger signals.

Minimum Volume (2500): Absolute volume floor to prevent signals during low-volume periods.

Min Wick Size (0.2): Minimum wick size as ATR multiple. Ensures significant rejection occurred.

Minimum Strength (1.5): Combined volume and wick strength filter. Higher values = higher quality signals.

Show Historic Zones (OFF): Enable to see all historical zones for backtesting. Disable for better performance.

Zone Extension (20): How many bars to project zones forward for anticipating future reactions.

TRADING APPROACH

ZONE REACTION STRATEGY: Wait for price to approach absorption zones and trade the bounce or rejection. Use the zones as dynamic support and resistance levels.

BREAKOUT STRATEGY: Trade decisive breaks of strong absorption zones with proper risk management. Failed zones often lead to strong moves.

CONFLUENCE TRADING: Combine absorption zones with other technical analysis for highest probability setups. Look for alignment with trend lines, Fibonacci levels, and key support/resistance.

RISK MANAGEMENT: Always use stop losses beyond the absorption zones. Target minimum 1:2 risk-reward ratios. Position size appropriately based on zone strength.

OPTIMIZATION GUIDE

For Conservative Trading (fewer, higher quality signals):
- Volume Threshold: 1.5
- Minimum Strength: 2.0
- Min Wick Size: 0.3

For Aggressive Trading (more signals, requires careful filtering):
- Volume Threshold: 1.1
- Minimum Strength: 1.0
- Min Wick Size: 0.15

BEST PRACTICES

Markets: Works best on liquid instruments with good volume - major forex pairs, popular stocks, liquid futures, and established cryptocurrencies.

Timeframes: Effective on all timeframes from 1-minute scalping to daily swing trading. Adjust settings based on your timeframe and trading style.

Confirmation: Never trade absorption signals in isolation. Always combine with trend analysis, market structure, and proper risk management.

Session Timing: Be aware of market sessions and avoid trading during low liquidity periods or major news events.

Backtesting: Use the historic zones feature to validate performance on your chosen market and timeframe before live trading.

CUSTOMIZATION

The indicator offers complete visual customization including zone colors, border styles, label appearances, and info panel positioning. All colors can be adapted to match your chart theme and personal preferences.

Alert system provides both basic and custom message alerts for real-time notifications of new absorption patterns.

PERFORMANCE NOTES

Default settings are optimized for most markets and timeframes. For best performance on older charts, keep "Show Historic Zones" disabled unless specifically backtesting.

The indicator maintains excellent performance even with extensive historical analysis enabled, handling up to 500 zones and 100 labels for comprehensive backtesting.