Absorption Bubbles

The Absorption Bubbles indicator visualizes absorption events by plotting dynamic bubbles on candle wicks where volume activity suggests one market side is absorbing the other's pressure. This tool helps traders identify key price points where aggressive orders are being accepted or halted, providing insights into potential trend exhaustion or reversals.

Usage

The Usage section explains how to interpret the visual signals and adjust the tool for different market conditions:

• Buying Absorption (Red Bubbles on Lower Wicks): These appear when sellers push the price down, but buyers absorb the selling pressure at the bottom of the range. This often signals a potential price pivot where the market may begin to move upward.
• Selling Absorption (Green Bubbles on Upper Wicks): These appear when buyers push the price up, but sellers absorb the buying pressure at the top of the range. This reflects resistance and suggests the price may move downward.
• Bubble Size: The size of the bubbles scales based on the intensity of the absorption. Larger bubbles indicate stronger absorption relative to the recent volume history.
• Bar Coloring: The script highlights candles where high volume is concentrated within the candle body rather than the wicks. Green bars indicate aggressive buying activity being accepted, while red bars indicate aggressive selling activity.

Details

Absorption occurs when a limit order participant (passive trader) absorbs all the market orders (aggressive traders) of the opposing side, preventing price from continuing its current direction.

The Absorption Bubbles indicator utilizes a normalization process to identify these events. Instead of looking at raw volume, which can be misleading across different timeframes or market sessions, the script measures volume against a rolling standard deviation defined by the Lookback Period. By analyzing where the mid-price falls relative to the candle's wick and body, the script determines whether the volume concentration represents absorption at extremes or aggressive movement within the body.

Settings

• Show Bubbles?: Toggles the visibility of the absorption bubbles on the chart.
• Absorption Threshold: Sets the sensitivity for detecting absorption. Higher values filter out weaker signals, leaving only significant events.
• Lookback Period: Defines the number of bars used to calculate the rolling standard deviation for volume normalization. Shorter periods make the script more sensitive to recent spikes, while longer periods smooth out the data to identify broader trends.

FAQ

How do I interpret the colors? Green bubbles on upper wicks indicate sellers absorbing buying pressure, while red bubbles on lower wicks indicate buyers absorbing selling pressure.

What does the bar coloring represent? Bars are colored when significant volume occurs within the candle body rather than the wicks, signifying aggressive volume being accepted by the market rather than being absorbed at the extremes.

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