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This is part of a continuing series that answers common questions we receive from customers. In case you missed previous articles here are the links.
Are there any specific Footprint patterns you look for?
Certainly! There are many and some patterns depend on the type of Footprint being viewed and also the chart interval type being used. Footprint charts can be viewed traditional time based charts or price action based (point & figure, tick, volume, delta, etc) charts. The chart patterns will fundamentally be the same as what you are used to viewing on traditional bar or candle charts, however, the unique feature of the Footprint is that volume is contained along with price. Because of this unique patterns will develop.
Volume Clusters will develop, and given the color shading capability, allow you to view whether more net buying or selling is occurring in a specific cluster. Because volume is contained within each Footprint, you are able to follow strength as price moves in the direction of the trend.
For example, one confirming observation would be to ask yourself as price trends higher did the high volume price within the current bar migrate higher than the high volume price of the previous bar? Comparing this over a series of bars gives clues to the underlying activity.
Volume Imbalance Trigger at support or resistance is a very helpful way to qualify trade entry at designated levels. Every trader uses some sort of support and resistance and this is a powerful way to peer inside the bar and confirm a trade.
In this pattern you look for a sell volume imbalance pattern (trigger) at the high of a bar or a buy volume imbalance at the low of a bar. This Footprint pattern provides a way to sit, wait, qualify, then pounce on the trade when the time is right.
This is the first post in a series this Summer where we will summarize a conversation we had with one of our customers and provide a concise answer to question. Each conversation represents a similar conversation we have had with many different customers through time and will provide helpful information no matter your experience with MD.
I understand that using MD involves screen time to observe various patterns. I suspect many, like myself, tend to respond to that with “what exactly should we be looking for?” Can you provide a short checklist of the primary things we should be cycling through as we observe the Footprint in MD?
In other words, for a beginner with MarketDelta, what kind of mechanical process of observation would instill useful skills and lead to mastery.
The primary benefit of the Footprint chart is the ability to “see inside the bar”. This opens up all sorts of new patterns and gets you closer to the market. The Footprint is not a system. It is a chart and is meant to be interpreted and used to provide further information in the decision making process. We recommend using it alongside your existing indicators at first then begin to rely on it more and more as your experience and knowledge increase. A few key things to pay attention to are:
As price trends and rotates, pay attention to the edges of Footprints. You are looking for the light and dark boxes and the actual volume numbers within the boxes.
If the market is trending:
If the market is rotating:
This a newer Footprint type that compares the trading activity between the bid and ask. A solid approach for first using this Footprint type is to use it as a trigger with your predefined support and resistance levels.
An example would be if the market is testing a known resistance level and you see a sell volume imbalance, this would be treated as a sell signal and a move lower expected.
Volume (Footprint) Distribution
This is a way to see inside the bar to determine not only “where” the volume is aggregating, or not, but also show the delta at each price. This specifically shows whether more aggressive buyers or sellers were trying to influence price at each level.
Download our helpful guide “Learning to Read the Footprint Chart“. It provides lots more information and will allow you to take these simple concepts above and move to a deeper level of understanding and application of your new knowledge.
Yesterday we released a new update packed with lots new things, including some fixes and polishes.
1. Using Pre-defined RTL Tokens.
More information can be found here.
Composite profiles are volume distributions that are built on data from one or more sessions. The session could be day session only or also include overnight data. That is typically a personal preference and varies based upon the market traded.
Profiles built upon multiple sessions provide a way to view and quantify the big picture. Composite profiles show high and low volume areas, as well as multi-session volume points of control. To learn more about high and low volume nodes visit this helpful blog post talking about trading HVN’s and LVN’s.
Composite profiles provide context for the current day’s auction. They provide clues to where big support and resistance levels exist.
Here is a quick tutorial on how to build the profiles and automatically draw a line where high and low volume nodes exist.
First, download as much minute data you need for the period you wish to study. In this example, I will look at the composite for the last 200 trading days for the ES, so I start with a minute download:
Then, I look at any ES multi-pane chart, typically a bar or candlestick chart, and change its view period to time period I wish to study:
After you are done, look back to the beginning of your chart to make sure it starts at the time that begins your study period.
Finally, add an instance of the Profile indicator. One way to do this is to use the Insert button on your keyboard, then find the Profile indicator in the list.
Use settings similar to what is shown below:
You can also use the “HVN/LVN” option if you want to have the indicator automatically create horizontal reference lines at the high-volume and low-volume nodes in the profile. You can adjust the sensitivity for this setting as well. A sensitivity of 10 would require a valley’s volume to be lower than the 10 prices above and below it.
When you are done, depending on your stylistic preferences, you will have a volume composite drawn on the chart like so:
LVN = “Low Volume Node”
This describes a single price or price area where there has been a dip in the profile because of a particularly low amount of volume. LVN’s typically represent areas on the profile where little trading took place between buyers and sellers and will generally be a price level that gets quickly rejected by traders. Trading in the area of an LVN is typically fast and aggressive, meaning there is not a lot of time to get in or out. The market usually tests the level and then passes through or gets rejected.
HVN = “High Volume Node”
This describes a single price or price area where there has been a bulge in the profile because of a particularly high amount of volume. HVN’s typically represent areas on the profile where heavy trading took place between buyers and sellers and will generally be a price level that the markets gets stuck trading around. Price moves into and out of this area are slower as the market digests volume. HVN’s do not need to contain the VPOC – volume point of control or high volume node for the profile – to be considered an HVN.
A Few Reasons They Work
A useful way to identify support and resistance is to reference naked POC’s. A naked point of control represents the high volume price within a bar that has not been pierced by a subsequent new bar. It is represented as a line drawn across the chart into the future until price trades that price again. Once the price trades the lines stops drawing.
Look at these examples to see how it is visually represented on the chart. One of the benefits of MarketDelta is this technique can be applied to any time frame chart, not just the typical 30 minute bars. It can be applied to 5 minute charts, daily, reversal (point and figure), renko, tick, volume, and more!
How to Trade Using Naked POC’s
The best way to apply naked POC lines is to identify support below and resistance above. The definition of a POC is a price that attracted a lot of trading volume in the past, so the idea is if price approaches it again in the future it will serve as a stopping point, at least temporarily. Those who traded heavily there in the past will most likely defend it in the future. For this reason alone naked POC’s become price attractants but also price stoppers.
Settings (How to Add to Your MD Charts)
Right click to add a technical indicator and choose Profile. This is the profile indicator. There are lots of settings options on this preferences window, but the only ones that are important are outlined below.
Market Profile® Charts
MarketDelta Charts also have Market Profile which allows for the naked POC to also be plotted on the traditional Market Profile graphic. Here is an example and how to apply the setting to the chart.
A novel use of the volume imbalance Footprint chart is to use the manual setting and set it to 101. This represents 101% and would color each volume imbalance comparison. To learn more about the comparison methodology see this post.
What we would be trying to achieve in setting it up this way would be to highlight which side, bid or ask, is experiencing more trading volume. This comparison uses the volume imbalance methodology. Setting it up this way can be very helpful in understanding the auction taking place and visually show the dominant order flow on the chart.
Here is a sample of what the ES would look like if setup this way.
Just double click the Footprint and set it up this way.
There have been a lot of requests for the video and slides from yesterday’s webinar Making it Easy to Read the Footprint Chart so we created a slide share with the video at the beginning and the slides after that. You can easily skip the video by clicking next and getting right into the slides, although a lot of valuable information was provided in the video in case you missed it.
What holds people back from understanding?
Emotion! There is no doubt that as humans we are scared of the unknown. For example, when you don’t understand something, there is an obvious element of fear. Trading has 2 layers of that. The first layer is, “How do I learn this business? Once we get past the “OK, I think I know the mechanics, I’ve read some books, I know more than I did two months ago…” we fall into the second unknown. The realization that we really are uncertain where the market is going, sometimes we’re right, sometimes we’re wrong.
Do you see how once you get past first unknown, you’re hit with the second?
Peel back the onion and you’ll be surprised that the skill set of career traders are not what you might of expected. The basics are also the advanced. Some of the best edges in trading are always the, “why didn’t I think of that?!” Often times being good at something takes less learning and more understanding. Try to strip down this business by taking your consumer skills and apply them to trading. It’s amazing how much less time it takes to understand something, when you knew it all along.