Topic 19: Exhaustion & Absorption with Delta — CRITICAL FOR BOT

Exhaustion with Delta

Definition

When fewer buyers want to buy at new highs, or fewer sellers want to sell at new lows — represented by delta divergence.

Seller Exhaustion (BUY signal)

• Price makes a new LOW but delta does NOT make a new low
• Sellers are exhausted — no more selling pressure at these levels
• = Reversal opportunity (buy)

Buyer Exhaustion (SELL signal)

• Price makes a new HIGH but delta does NOT go up
• Buyers are exhausted — no more buying pressure at these levels
• = Reversal opportunity (sell)

How to Use

• Spot exhaustion with delta to determine entry OR take profit level
• Very useful tool for timing entries and exits

Absorption with Delta

Definition

When aggressive buyers can't take price to new highs, or aggressive sellers can't take price to new lows — the aggressive pressure is being ABSORBED by the opposing side.

Sell Absorption (BUY signal)

• Delta makes a new LOW (aggressive selling) but price does NOT make a new low
• Selling pressure is being "absorbed" by buyers
• = Price likely to rally

Buy Absorption (SELL signal)

• Delta makes a new HIGH (aggressive buying) but price does NOT make a new high
• Buying pressure is being absorbed by sellers
• = Price likely to drop

Key Rule: Correlation Between Delta and Price

• Want HIGH CORRELATION between delta and price while in a trade

For LONG positions:

• Price breaking new highs → delta should break highs too
• If buyers aren't interested at new highs (delta NOT breaking highs) → probability of reversal increases → take profit

For SHORT positions:

• Price breaking new lows → delta should break lows too
• If sellers aren't interested at new lows (delta NOT breaking lows) → probability of reversal increases → take profit

Images

Homework

1 chart showing exhaustion with delta + 1 chart showing absorption with delta.

Key Takeaway for Bot — THIS DEFINES THE ENTRY/EXIT LOGIC

Entry Signals:

• Exhaustion at lows (price new low, delta higher low) + key level = BUY
• Exhaustion at highs (price new high, delta lower high) + key level = SELL
• Absorption at lows (delta new low, price holds) + key level = BUY
• Absorption at highs (delta new high, price holds) + key level = SELL

Exit Signals:

• In a long: delta stops making new highs while price does = TAKE PROFIT
• In a short: delta stops making new lows while price does = TAKE PROFIT

This maps EXACTLY to the gold lessons:

• "Delta shifted from positive to deep red" at highs = exhaustion/absorption = SELL
• "Delta changed, buyers taking over" at lows = exhaustion/absorption = BUY
• The "last test" = exhaustion confirmation before the reversal