Smart Money Concepts - Absorption

The Smart Money Concepts - Absorption indicator tool identifies potential institutional absorption and defense events by utilizing split-volume VWMA ribbons and advanced statistical validation filters. It detects moments where price interacts with specific volume-weighted bands and produces a clear rejection, signaling that market participants are absorbing order flow rather than allowing a breakout.

Usage

The indicator can be used to spot high-probability reversal or defense zones based on the interaction between price and "Energy Ribbons."

• Absorption Markers: Small triangles appear on the chart when a "Touch + Rejection" event occurs. A Buy Absorption (cyan) suggests the market is defending a lower level, while a Sell Absorption (orange) suggests overhead resistance is absorbing buying pressure.
• Volume Models: Users can switch between "Geometry" (estimation based on candle close position) and "Intrabar" (high-precision data from lower timeframes) to derive the buy/sell volume flows.
• Filtering: The tool allows users to toggle "Resonance Acceleration" to ensure they aren't trading against a strong momentum trend and "Elasticity" to confirm the quality of the rejection.
• Dashboard (HUD): A real-time display provides metrics for price/volume Z-scores, delta, entropy states, and resonance momentum, giving a holistic view of current market conditions.

Details

The script is built on the concept of Split-VWMA Resonance. It calculates two distinct sets of Volume-Weighted Moving Average ribbons: Buy-weighted (using buy volume) and Sell-weighted (using sell volume). The "Resonance Score" is derived from the divergence between these VWMAs and standard SMAs across multiple periods (5 to 50).

To filter out noise, the indicator employs Volume-Weighted Entropy. This fractal-efficiency metric identifies chaotic or "dead" market states. High volume typically reduces entropy (validating the absorption), while low-volume market disorder increases it, blocking unreliable signals.

Settings

Global Settings

• Volume Model: Selects the calculation engine (Geometry or Intrabar).
• Intrabar LTF: Sets the lower timeframe for the Intrabar model (e.g., 1S, 15S, 1m).
• Global Lookback: Sets the sample size for Z-score and statistical calculations.

Quantum Physics Engine (Filters)

• Filter: Vol-Weighted Entropy: Toggles the disorder metric filter.
• Max Entropy %: Sets the threshold above which signals are blocked due to market chaos.
• Filter: Resonance Acceleration: Requires momentum velocity to align with the signal direction.
• Filter: Hooke's Law (Elasticity): Ensures the "recoil" or bounce-back strength is significant compared to the penetration depth.

Visuals & Dashboard

• Show Dashboard: Toggles the real-time HUD display.
• Energy Ribbons: Controls the visibility of the Buy (Green) and Sell (Red) ribbon sets.
• Absorption Events: Toggles the triangle markers and optional resonance trend filtering.

FAQ

How do I access Smart Money Concepts - Absorption?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.

What is the difference between Geometry and Intrabar modes?

Geometry mode estimates buy/sell volume based on where the candle closes relative to its range. Intrabar mode is more precise but requires a TradingView plan that supports lower-timeframe data access (like 1-second or 1-minute bars).

Why do some signals disappear or change?

Signals are calculated based on live price action. For the most reliable results, users should wait for the candle to close, as conditions (like the "Rejection" requirement) can change while the bar is still active.