Absorption Versus Exhaustion

Absorption and exhaustion are not the same thing.

Absorption generally refers to aggressive buying or selling being met by sufficient opposing liquidity to limit price movement.

Exhaustion refers to aggressive activity diminishing as a move approaches its end.

Imagine NQ rallies into resistance.

Scenario A: Buyers keep executing trades at the offer, but price barely moves. This could indicate absorption by sellers.

Scenario B: Buying activity fades as price approaches the high, and the market struggles to attract further buyers. This could indicate exhaustion.

Both situations can precede a reversal, but neither guarantees one.

Understanding the difference helps me ask a better question: is the opposing side absorbing the move, or is the current side simply losing momentum?