Traders used to apply only the fundamental and technical analysis in the 20th century. They didn’t see what took place inside the candles. The cluster analysis or Footprint emerged in the 2000s.
In this article for beginners we will analyze:
- what the Footprint is;
- how the Footprint works;
- how it can help to achieve a positive result in trading.
Footprint is a graphical or table presentation of the traded volume at each price level. Footprint consists of three parts and shows the following things to traders in real time:
- traded volume at each price level;
- order flow or aggression of market players. The seller aggression is marked red while the buyer aggression is marked green.
Some sources use the clusters and cluster analysis terms instead of Footprint and Footprint analysis. The idea is the same.
This method appeared only 20 years ago and, as of today, it is much more advanced than the technical and fundamental analysis. Uniqueness and usefulness of the Footprint lies in the fact that a trader can analyze not only the vertical volume for a certain period of time but also the horizontal volume which was traded at each price level.
Technically, a cluster is a set of cells with important information. Each price level has its own cell at a certain time period. A trader can see in a cluster what took place inside a bar.
It means that each cluster has data about the volume for each price level apart from 4 standard points – High, Low, Close and Open. It is important to understand that traders see market orders, executed by means of limit orders, in the clusters. (You can find more information about the principle of bringing orders together in the article about the Smart DOM).
ATAS has 25 Footprint types: 5 basic types and additional visual settings in each of them.
- Bid x Ask
Let’s consider each of the 5 basic types.
Footprint of the Volume type includes 6 variants of the cluster display. This Footprint type shows the total Bid and Ask volume, traded at each price level. The volume could be single-coloured without distinguishing buyers and sellers. Or it could be multi-coloured (red and green) depending on whether there were more sellers or buyers at this specific price level.
Advantages of this Footprint type:
- traders can clearly see movement of the horizontal volume inside each bar;
- traders can clearly see what price levels attracted traders most of all – in other words, at what prices there were more trades;
- traders can see ‘drying out’ of the volume at extreme points;
- traders can see how many trades formed the volume when the volume and number of trades are united at each price level. A small number of trades with a significant volume could be the work of the managed money. It is advantageous for traders to be on the side of the managed money rather than trade against it.
Example of a 5-minute mini Dax futures chart. 77 contracts were sold in 44 trades in point 1 and 54 contracts were sold in 12 trades in point 2. It is highly likely that more serious players are present in point 2.
Footprint of the Trades type includes 5 variants of the cluster display. This Footprint shows the number of trades at each price level. You can see whether they were sells or buys by the cell colour. You can also notice tests by a decrease of the number of trades when returning to the resistance/support level. The level test gives a possibility to enter a trade with the minimum risk level.
Footprint of the Time type includes 4 variants of the cluster display. This Footprint shows how many seconds the price stayed at each level. One unit is one second. It is convenient for traders to analyze what levels the price passed fast and at what levels it stopped, that is the impulse movements and consolidations are specified. This Footprint variant could also be interesting in the charts which are not connected to time – for example, range, reversal or tick.
Footprint of the Bid*Ask type (what Bids and Asks are) includes 7 variants of the cluster display. This Footprint type shows the volumes separately traded by Bids and Asks. You can set a table or graphical view. You can also set placement of Bids and Asks beside each other or from both sides of the central axis.
Advantages of this Footprint variant:
- you can see at what price levels there are more Bids or Asks, that is where an imbalance appeared;
- you can see whether there is demand/supply at the bar extreme points;
- you can see an impulse or a sharp price movement – the bars will be thin in these places.
Footprint of the Delta type (what the Delta is) includes 3 variants of the cluster display. This Footprint shows the Delta, that is the difference between the market buys and sells. You can also combine the Delta and Volume here. It is convenient for traders to analyze absorptions, that is big volumes without price movement.
The Footprint display is set in the upper menu. A side menu with Footprint variants appears after you select clusters. The settings are flexible and clear and do not require a big effort.
Footprint is not a trading system by itself. It helps traders to find regularities which come into action under certain market conditions. However, it is always necessary to take into account the context and receive confirmations.
The ‘p’ pattern warns after a local downward movement that sellers exit from their positions and buy with market orders. Thus, the seller can register profit, since it is necessary to buy for closing the open sell position. We may see the growth of the price and volume in the clusters with positive delta if the buys are executed by market orders. But it is always important to remember that a trade is executed when market buys meet limit sells. If these are new limit sell orders, perhaps, the price will continue to go down. If we consider this bar as a reversal one, it is necessary to wait for confirmation by the next bars.
In the event of an uptrend, this pattern confirms the movement strength since the volumes move together with the price.
Example. We marked ‘p’ bars, which confirm the price growth, with red numbers 1 and 2 in the 800-tick gold futures (GC) chart.
The ‘b’ pattern warns us after a local upward movement that buyers exit from their positions and sell with market orders. Profit is registered here. But again, it is important to remember that a trade is executed when market sells meet limit buys. And if these are new limit buy orders, perhaps the price would continue to grow. If we consider this pattern as a short-term reversal, it is necessary to wait for confirmation.
Such bars confirm the trend in the event of downward movement because the volumes move together with the price. We marked the ‘b’ bar, which appeared on top, in the example above with black number 3. Most probably, this is the profit registration.
Absorption is the formation of a huge volume without significant price movement. See example in the E-mini S&P 500 futures range chart (4) below.
There are more buys here than on the previous bars, but the price failed to move higher. The long shadow of the Delta in the lower part of the chart tells us that sellers won in this candle.
No demand is a gradual ‘drying out’ of the buying volume at the bars’ high after the uptrend. We marked this pattern with point 2 in the previous example. Buyers do not want to open long positions any more after the absorbed buys in point 1. The price should roll back from the absorption level to collect new buyers.
No supply is a similar pattern but at a new day’s low. In this situation there are no more traders who wish to sell and there are more and more buyers who reverse the local downtrend.
Summing up the current article, we will give you a table of comparison of the Footprint advantages (of which there are significantly more) and disadvantages.
|Helps to find a good entry point with the minimum risk level||One screen shows only a short period of time due to a high degree of detail|
|It quickly shows that a trader took the wrong side and, consequently, it helps to close loss-making trades faster||Day Footprint charts are very stretched out|
|Shows domination of buyers or sellers|
|Shows absorption in real time|
|Shows POC (Point Of Control) movement|