medium · Order Flow Analysis absorption-exhaustion-imbalance
The treatise mentions a 'Self-Reinforcing Feedback Loop' regarding trapped traders.
What does this mean for price movement after a reversal?
- The market will almost always return to trap traders out at breakeven before continuing.
- The feedback loop refers to high-frequency algorithms mean-reverting the price sharply.
- It means the market will enter a period of stable, balanced two-sided absorption.
- The forced liquidation of losers creates additional order flow in the reversal direction.
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