Strategy of using the footprint through the example. Article 1

There is a multitude of forms and variations of reversal patterns known to nearly every trader. Their description could be met practically in any decent book about the technical analysis. These are a double/triple peak, double/triple bottom, external bar (absorption) and so-called ‘pivots’ (long candle shadows).

We do not set a goal to describe all traditional reversal patterns here. We rather wish to show how the Footprint reflects some of these formations and also why standard patterns bring us much more valuable information in combination with the Footprint. Distribution of volume in the form of clusters would allow you to look at the standard price patterns from a different angle and distinguish a true reversal from a probable tendency continuation.

One of the key parameters of the reversal identification is volume. General rules of the volume analysis:

• Important highs and lows are formed in the market after the emergence of relatively high volumes.
• Retest of an extreme point at low volumes is often a sign of a level testing by the price, which has no strength to break it.
• Retest of the support/resistance at high volumes provides traders with information that the level, most probably, would be broken.
• Volume helps to assess significance of one or another price pattern.
• Volume gives confirmation of the trend direction. Use Footprint to get an idea of when and how a market reversal takes place.
• Volume mainly increases in the trend direction and decreases at countertrend movements.
• Pay attention to what point of its range a bar is closed in. If there is a focused movement inside the bar but then the market reverses and closes near the opposite extreme point, there is a high probability that the movement was held back.

The main reason of success of many traders, which traded in the pit (on the floor), was that they had information about real volumes. This useful information helped them to accurately identify demand and supply at important price levels during the whole trading day. Many of these traders faced difficulties after introduction of electronic trading platforms. What is the reason? Most probably it is connected with the fact that the traditional methods of building charts failed to provide them with comfortable visualization of the order flow and volume distribution, which they had once.

Inefficient traditional representation of the market information was replaced by a revolutionary innovation – Footprint. At last the traders got a possibility to analyze data from the exchange and distribution of the traded volume at each price. The Footprint (cluster chart) satisfies the requirements of the most sophisticated traders in the best way possible.