medium · Order Flow Analysis absorption-exhaustion-imbalance
A footprint shows a stacked bid/ask imbalance: at several consecutive price levels, traded volume on the bid (sell side) exceeds the ask at the level above by more than the 300% imbalance threshold, forming a column of selling imbalances. Price, however, holds flat and then ticks up one level.
What is the most defensible order-flow conclusion?
- The stacked selling imbalances met passive bids that absorbed them; the upward tick despite the selling pressure suggests absorption succeeded and responsive buyers are now in control
- Stacked selling imbalances are unconditionally bearish no matter the context, so the one-tick move up is just noise and continuation lower remains the high-probability path
- Diagonal imbalances always confirm whatever the prevailing market trend already is, and because the prior trend here was firmly down, this stacked column guarantees further downside follows
- Because imbalance is computed diagonally at each price level, a column of bid-side selling imbalances actually represents aggressive buying pressure, making this setup straightforwardly bullish
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