What if instead of just seeing prices going up and down, you could actually see inside each price bar to the buy and sell orders being made in real time? What would that additional level of understanding do for your trading? A lot, actually…
Doctors use technology like x-rays and MRI’s to see inside our bodies to have a better understanding of what might be wrong. Mechanics have the right tools to look under the hood and diagnose problems with our automobiles. In all cases, they use technology and newer tools and methods to help them do better at their job and perform a better service.
The same idea can be applied to trading. Traditional charting methods were all developed before electronic trading existed. Technology changed how trading was done as it moved from the floor to the screen. The MarketDelta Footprint Chart is the only chart to have been developed specifically for traders AFTER electronic markets were created. Electronic markets created challenges as well as opportunity. The challenge was the millions of data points now available. The opportunity was to find ways to make use of all the new data, whether it be visually (like the Footprint chart) or algorithmically (using automated trading systems).
The Footprint charts purpose is to leverage the reams of data produced by electronic markets and provide traders a visual way to have greater insight and transparency to what is happening in real time, making them a more informed trader.
The Footprint chart contains all price and volume data and logically organizes the trading data so traders can see inside the chart which allows them to:
Quote from a new user of the volume imbalance – “the sentiment of traders on the S&P was easily decoded using the footprint volume imbalance charts. It was like I had a listening device and could tell what large players were thinking collectively. Now that’s impressive. I’m glad to have met your software.” – more testimonials
If you were able to join us for our webinar yesterday we introduced the volume imbalance Footprint®. This Footprint takes all our experience and insight and distills it into a simple, easy to trade chart.
Here are all the resources we mentioned in the webinar, along with the screenshots, chart definition, and other links to help you learn more.
The volume imbalance Footprint is included free of charge in ALL versions of MarketDelta Charts. A free trial is available at www.marketdelta.com/trial or you can subscribe at www.marketdelta.com/charts.
Recently a customer from the great country of Australia emailed in asking about a particular pattern he would see happen infrequently on the Footprint chart. He wondered what it meant and wanted to know if we had any tips for how to trade the pattern.
The pattern is shown in the image below and occurs when there is both bid and ask volume at the high or low price of a bar. This example shows the high of bar example.
The question was “can you tell me the HOW and WHO the 32 and 84 contracts traded on the bid are?” For those who don’t already know, the Footprint chart classifies buyers and sellers and records the trading activity at each price within the bar. The numbers represent the volume traded. Learn more about the Footprint here.
So looking at the first bar, 32 x 2038 represents 2038 contracts/shares trades when that particular price was the ask price and 32 contracts/shares trades when that price became the bid price and traded. The unique thing about this pattern is when 2038 was taken out (lifted) and became the bid the next higher price did not trade. Typically it does but in this case the sellers were very quick to hit the bid and make it go offered again. A total of 32 contacts traded when it briefly became the bid.
So while at each price there is a battle between buyers and sellers, this particular battle shows buyers want to take price higher but are being challenged by sellers. We have found this pattern to be a continuation pattern and whether it happens immediately or not, price tends to come back and test or trade through where this pattern occured. Therefore, we call this Footprint pattern unfinished business.
When this pattern occurs the expectation is for price to return to this level and it typically seems to occur within 30 minutes and usually a lot sooner.
We have actually coded up the ability to have this pattern automatically recognized using the MPH (multiple price highlighter) indicator which is available in all version of MarketDelta Charts.
A related article on this pattern can be found at footprintchart.com.
One of the unique technical indicators offered within MarketDelta Charts is the Multiple Price Highlighter. Think of this indicator as the “Footprint chart indicator”, meaning it gives you the ability to dissect the bar and apply unique volume and delta studies to each price within the bar. There are a lot of different combinations you can conceive, so check out the FAQ to learn more.
Here is a useful and simple example that highlights a price within the bar when a certain number of contracts or shares have traded at that specific price. In this example the volume threshold is set to 15,000. This means that if 15,000 contracts trade the price will be highlighted cyan, or your color of choosing. You might also choose not to highlight the entire price but instead just put a dot or box on the price when this occurs. There are numerous options.
Notice that it is very infrequent that we see 15,000 trade at a price, at least using the time frame for this chart which is 5 range. Also notice how this price coincided with the high volume price for the day (see on the left), so this serves almost like an alert that volume is building at this level and is turning out to be a key level.
This indicator is available in all versions of MarketDelta Charts and can be easily added to the chart by pressing the Insert key and selecting Multiple Price Highligher. Use the settings below or anything you might want to try.
Here is the chart definition to the MPH Example used above.
Every now and then we look to highlight an interesting chart that showcases some of the powerful features within MarketDelta. Here is an example of a Footprint chart set to the Footprint Profile type (any Footprint type could be used) showing the volume point of control (VPOC) as a blue box within each bar and then a blue line denoted as a “naked VPOC”.
There were 2 indicators used to create this chart. The Profile indicator to draw the naked POC lines and the Volume Price Statistic to draw a box around the high volume price. A naked VPOC is simply a high volume price that has yet to be re-tested. So the blue line will continue to draw across the chart until that price trades again.
Many traders like to “lean” on high volume areas and it is a known fact the market likes to test high volume areas. So one way to use this information would be to look at these lines as support and resistance areas then use the “inside the bar” Footprint information to get in and manage the trade.
The video below shows how to setup a spread or pair within MarketDelta and then plot it on a Footprint.
Tick Data on Pairs – Buy and Sell Volume
We often receive calls or emails from customers and those investigating the Footprint about the best way to interpret the Footprint chart. While interpretation is a slippery slope, I wanted to record a video that shows just one approach of how this valuable information presented on a Footprint chart can be interpreted.
As you will see during the video, I used the Playback feature built into MarketDelta. You can learn how to use this here. The playback feature is an extremely useful tool for learning how to read and interpret the Footprint chart because you can go back and see how a move, pullback, reversal, etc. developed. If nothing else, this will greatly aid in your understanding of how markets operate and trade.
The key things to remember from the video are:
Just like eveyone else, we are creatures of habit. We often only post examples of markets most familiar to us. Today’s examples come from the SGX and shows some of the largest stock index futures trading in Asia. These offer some of the most dynamic markets in the world and are more and more liquid all the time. If you are looking to broaden your exposure to other stock indexes, this would be a fantastic place to start.
The examples I will look at today are the MSCI Taiwan Index and the Nikkei 225. Since this might be the first time you have seen a Footprint chart, it might be worth watching our Footprint Overview video. The video will explain what the Footprint chart is and offer some of the benefits it provides.
Footprint charts obviously look a little different than a candle or bar charts but they provide added information the other chart types do not contain. The color or each Footprint conveys whether more aggressive buying or selling took place at that price. This is measured by following volume and how it traded at each price. Sometimes it might be best to just look at it on a bar by bar basis as shown on the Volume Breakdown indicator. This is present at the bottom of most of the screenshots. Another critical piece of information is the ability to see volume intra-bar. The Footprint provides price by price (or as we say “step by step”) information so you have more timely and accurate information for making trading decisions. Watch the Footprint Overview video (link above) to understand more.
If there are other markets, time frames, chart types you would like to see and example for just email us or post a comment. A 15 free trial is available at www.marketdelta.com/Trial_Form. Our video library is here.
The purpose of the Trader X series is to get a glimpse inside the minds of MarketDelta clients that are profitable traders. Each trader that we profile will have reported to us yearly net profits greater than $100,000. If you are interested in being featured in the Trader X series, please contact MarketDelta.
How long have you been trading?
What do you enjoy most about trading?
The challenge of it. I’m non-athletic by nature, but I feel like I can be the Michael Jordan of trading. Trading allows me to be competitive. In trading, I get to “be like Mike.”
What do you like least about trading?
Trading guru(s) who sell their systems and ideas for a whole bunch of money.
What are the top 3 factors that contributed to your success?
That’s easy. The top 2 are taped to my computer screen. Discipline and focus. I would say the 3rd is to be fluid or flexible.
What weaknesses did you have to overcome? My discipline and focus…and bullheadedness.
How long have you been using MarketDelta?
Over 2 years.
How does MarketDelta best serve your needs? What trading strategies do you use (be as general or specific as you feel comfortable)?
The Footprint chart allows me to read between the lines. I’ll share some specific setups that I use. I use the Developing Value Area (Hi, Lo, and POC) and the footprint chart settings. I setup my Footprint charts: I use the Delta setting. I have 2 Footprint charts and one profile chart (split blocks on a 405 minute profile). One monitors trades of 100 lots and above. The other monitors all trades. Then I look for chart patterns. For example: if there is consolidation above the DVAH, I see that there’s strength (click on the screenshot below for a larger view).
Every once in awhile these setups don’t work…but there are more winners than losers.
What trading books, websites, or trading educators would you recommend?
Trust your personal self. I spend 405 minutes in front of the screen most everyday. Develop your own feel. With that said, I recommend the Pete Steidlmayer and Ted Hearne 10 page primer. Understand the concept of staying and trading in one timeframe only.
I do recommend the 2 month introductory course I took from Jim Dalton and Terry Liberman. They help a trader how to learn trading (rather than being taught). I learned how to be a better left (analytical) and right brain (intuitive) balanced trader through their teaching about how the brain works.
Approximately how much money have you spent on external trading education? How many hours have you spent on education?
20 years times 405 minutes a day would be a good approximation.
Trade Management and Goals:
What advice do you have on trade and money management?
Think in terms of probabilities. At the end of the day I know I’m going to lose $1000. With that mind set, I can then accept losing and take all trades. I also know I will make $2000 a day. Thus, that nets out to 4 figures every day…hey…that’s what it’s all about.
Did you set trading goals up front in a very structured way, or did they just sort of develop as you became more successful?
My goal is to be the best trader I’m capable of being and it’s still the same as years ago. I do not set monetary goals. Rather, I just let my right brain recognize patterns that show up in the ES over and over. The monetary “points achieved” will fall in place.
Did you focus on good risk/reward trades? What timeframe do you trade?
I consider myself a scalper and trade a one minute timeframe. I trade 20-25 times a day with 75 being my max. I look to take what the market gives me which can be from 1 tick to 10 points. I only trade the e-mini S&P but I have traded the SPY and some stocks. Pick a time frame and stick with it. I trade dinky 1, 2, or 4 lots. I am a good small trader of contracts and a lousy trader of large amount of contracts.
Do you keep a trading journal?
I print out “homework” each and every day to reinforce the right brain pattern recognition. See example below on how I best learn my right brain pattern recognition (click on the screenshot for a larger view).
Any final thoughts or bits of advice?
An old floor trader friend Jeff told me you could give every one in the pit the exact hi and the exact lo for the next day and the majority will still screw it up.
Understand the market and understand yourself. Do not beat yourself.