The MarketDelta Blog

Click any picture on this page to see a larger version.

If you study a MarketDelta Footprint over a considerable length of time, you will eventually see anomalies that may, at first, appear to be errors in your price data, or even a problem with the chart itself. However, sometimes these oddities are in fact accurate information that reflect unusual activity in the market.

Here is what a “normal” Footprint chart typically looks like. In this case, it is set to a periodicity of “5 tick Reversal.” The market for these examples is the E-Mini S&P 500 Futures contract.

(The “Reversal” periodicity is one of many novel ways to chart prices in MarketDelta. For more information about this kind of chart, see this article about periodicities in general, and this article about how to create one yourself.)

You will see in this example that, as prices fluctuate, the chart reflects changing volume at the Bid and Ask prices.

However, sometimes you will see Footprints that show Bid and Ask numbers considerably different than this “normal” information, and it is important to understand what they mean.

Consider this chart:

This Footprint is from last week, just before and during the release of important pre-market reports on unemployment and payroll.

The first sign that something relatively unusual was happening was the the long column of trades that showed volume at the Bid only, while the Ask volumes were all “0.” This occurred immediately following the release of the reports. Notice how in most “cells” of this Footprint column, the price ticked down through many levels due to only 20 to 50 contracts hitting the Bid.

This column reflects two interesting aspects of the market at this moment. First, since little volume caused such movement in the prices, there was insignificant resting demand from buyers (in the form of Buy Limit orders) that would halt the selling activity. Second, the lack of any volume at the Ask during this move shows that there were no Market orders to Buy during this quick move, further showing an immediate sell-only response by the market. At price 1147.25, we see the first incidence of Ask volume, thus the first sign that some participants considered the down move over. Indeed, while not shown on this chart, prices did rise over the following minutes.

The next unusual pattern on the chart occurs on the right half of the chart. Here we see rare gaps in the Footprint. At first, this might seem like data is missing, or the chart is not keeping up with the activity. In actuality, this pattern is an accurate portrait of high volatility. Normally, Bid and Ask prices are in a tight spread, only 0.25 points apart. Here, we see the Footprint showing the Bid and Ask activity more than one point apart. Thus, the Bid-Ask spread was much higher than normal due to the rapid and high volatility. And in this case, the spread was actually greater than the Reversal setting of the chart, thus creating an entirely new bar as the contract moved between trading on the Bid versus the Ask.

Another unusual display on Footprint Reversal charts, which occurs more often, is the result of price gaps between sessions:

Here, we see another column of zeros. Unlike the prior example, this column of zeros contains no volume on either the Bid or the Ask. Since this is a Reversal chart, and not a time-based chart, MarketDelta creates a new column only when prices reverse by 5 ticks. In this chart, we have a Session 2 setting which excludes the overnight session activity. Thus, if prices gap up or down between two day sessions, we see a continuation of the Reversal bar on the chart, without regard for the time the activity occurred. This is in fact the entire goal of a Reversal chart, but you should be aware of this unusual pattern that is foreign to anyone who normally works with time-based charts.

This example illustrates that MarketDelta prioritizes the periodicity of the chart over the Session of the chart. And this is useful for other non-time based periodicities, such as Volume-based charts, where a new bar will not form until a certain volume has occurred in the market, regardless of when this volume actually took place. This can be a powerful way to organize price information independent of time, and may help you to see the bigger picture of how the market is unfolding.

Here is an unbelievable, maybe once in a lifetime example of a market crash in the period of 10 minutes. This was not a news release reaction. The market was already weak because of news out of Greece about a possible default on bonds, but this was something the market had been talking about for days. Lots of finger pointing has taken place for the crash since it happened, but the fact is, nothing captured this move like the Footprint chart and Ben Lichtenstein of TradersAudio.

Listen and watch as this unfolds, it is utterly amazing to watch, even if you aren’t a trader. This chart is showing a bid ask Footprint chart of the ES. The periodicity of the chart was set to 2500 volume. At times it was as if there no market to trade. Price just fluttered through space trying to find liquidity.

Audio for this video was provided by Ben Lichtenstein of TradersAudio. He is by far the best in the business and someone we recommend if considering a squawk box service.