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Methods for using the Footprint® Chart to Compliment and Enhance Market Profile®:
Testimonial - "...if you are a day trader you should familiarize yourself with MarketDelta." -- Don Jones - Cisco Futures
If you are familiar with Market Profile® very much at all you will recognize the name name Don Jones above in the testimonal. Don in one of the "godfathers" of Market Profile® and as highly regarded as anyone in the industry. His words mean a great deal and are pleased he sees how the Footprint® is complimentary to Market Profile®.
Market Profile® helps determine WHERE to trade and MarketDelta® helps determine WHEN to trade. Many traders use Market Profile® to display the overall structure of the market and gauge value. MarketDelta® compliments this by gauging volume and order flow to help determine whether or not what you are witnessing on the profile can be trusted. You can then use MarketDelta® to assist in more timely entries and exits and monitor volume at critical levels. In the following examples, order flow represents volume occurring at the ask (aggressive buying) and volume occurring at the bid (aggressive selling).
Trending Market – Use the Footprint® to better understand the “tide” of the market. As price trends and establishes new value, the Footprint® will represent volume and order flow and allow a trader to better gauge the strength and vertical ability of the trend. Invariably, momentum will diminish when order flow comes into balance or turns against the price trend. Using the Footprint® to follow a trend offers a very unique view of the market. Each Footprint® is colored according to which side of the market more volume is flowing. In a trending market, typically more volume flows in the direction of the trend. Using the Footprint® to watch as these "waves" of volume roll into a market provides a trader with greater transparency and a better idea or market tendencies.
Trending Market - Initiative Activity
Auction Rotations – Footprint® provides a better view of the vertical and horizontal ability of a market as well as the short term rotations that occur most of the time in many markets. Footprints® can be compared against the volume distribution or Market Profile® graphic to confirm a trader's intuition at key reference areas.
Price Auction Rotations
Range Extension – Confirm attempted range extensions with volume by gauging whether more volume is occurring on the bid at support levels or at the ask when pushing up against resistance levels. It's very difficult trying to gauge potential range extension based on price alone. Use volume and which side of the market more is occurring to better understand what is happening each step of the way.
Range Extension
Initiative Buying and Selling Activity – Based on where the current days structure is in comparison to the previous days value area, a trader can use the Footprint® to help confirm initiative activity and reinforce this directional bias using volume and order flow. This becomes very helpful when the market opens and quickly shows a directional bias with respect to price movement and which side of the market more volume is flowing. In this example, initiative buying is witnessed very clearly. Trying to sell the top of the value area and even the daily high (up to that point in time) was not the correct trade this time. Noticing the aggressiveness of the order flow and spikes in volume as price approached, traded, and violated these areas gave some true warning signs.
Initiative buying or selling
Bracketed and Balanced Market – In a balanced market the Footprint® will often show a back and forth auction between the buyers and seller, creating a Footprint® pattern called candy striping. Once bracketed boundaries are established, monitoring the Footprint® at those levels helps to better ascertain the likelihood of a failure to auction throught the established extremes or breakout from the current area.
Sideways, balanced, or bracketed market
Auction Failures – As price probes through a known reference point and fails, the Footprint® will (1) help to gauge the initial strength of the probe by monitoring the fuel of the market (volume) and (2) measure the aggressiveness of the auction in the opposite direction of the initial probe. Weak volume and order flow in the direction of the probe is often times a failed attempt to sustain the price move.
Price auction failures
Responsive Activity – The Footprint® can help show when order flow shifts from a selling bias to a buying bias or vice versa. Learn to recognize when price tests a value area whether or not responsive activity (order flow) is beginning to take place or not. When responsive order flow does not become evident at a critical level, it could be that the market is shifting from a bracketing (rotating phase) to range extension or a breakout.
Initiative activity
Point of Control (POC) - The Footprint® provides an inside view to support and resistance, especially when compared against the initial balance, opening range, value area, POC, and high volume areas. Footprints® will help confirm whether a suspected area of support/resistance will actually hold on a retest or price probe.
High/Low Volume Areas – Footprints® can give a trader the ability to see what the net order flow is at each specific price, as well as the total volume at each price. This is useful in determining the bias in the market at particular levels.
Learning Opportunity! - To learn more about MarketDelta's Market Profile® click below. It's a short recording to teach you more and assure you get the most out of MarketDelta®.
Learn more about MarketDelta®'s Market Profile® and other uses in our Strategies section.
Additional Learning Material:
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