Yesterday I had the privilege of being interviewed by Anthony Crudele, host of FuturesRadio. FuturesRadio is a podcast focused on the futures industry. Listen as I tell the brief story behind MarketDelta, how the footprint chart came about and a unique way to apply it, and then where I see technology leading traders over the next few years.
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. Powerful patterns will develop because of this unique relationship.
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.
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.
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