STUDY TO READ FOOTPRINT

The goal of monitoring the footprint is to identify whether the trading activity becomes weaker or, on the contrary, it becomes stronger at some extreme price levels.

Numeric values can have both relative and absolute meaning. Relative values show how a specific value correlates with itself at the stage of the bar formation and with neighboring cells and bars. Absolute values help to assess volatility. Each market has its own specific absolute values. Moreover, they depend on a specific timeframe. When assessing absolute volume values, it is necessary to take into consideration the time of a day and some specific events (pre-holiday trade, pre-expiration period, news broadcast and so forth).

A high volume node is a price level with a pronounced general volume, which was traded at this price. Low volume nodes are also important. It is necessary to track appearance of these nodes and also to analyze the price behavior at a repeated approach to them.

Ask yourself, when analyzing the footprint, at what bar end the main part of the traded volume is. Was it closer to the bar opening or closing? Was the volume distributed along the bar relatively smoothly? Perhaps, the volume was distributed in a bell shape, which assumes that the market is balanced, at least, at this moment of time. And again, always pay attention to the context. Is the volume so high in the node that you can assume that the price met a strong area of supply/demand? Also, take into consideration the general volume in the bar. In case it is too low, perhaps, it makes no sense to take this node into account.

Markets in microbalance could mean different things at different times. The trader’s task is to understand the context: whether the balance is caused by a typical inactivity of market participants at lunchtime or this balance emerged in the result of a real price consensus of all participants.

Is the microbalance a part of a bigger balance? Is it a stop in a strong trend? Is the balance a result of rather serious market movements or it emerges after a weak or practically absent market activity?

One more node variation is shown in the picture below. Note the similarity of volume distribution with the first example. General volume distribution is the same. Nevertheless, the node represents a high volume of sales in the first example (top right). In the example below, the node is at the bottom of the bar, but this time with a significant volume of purchases. There is a fight in the market and not a stop. Is it a turnaround? Difficult to say for sure. In fact, it is not clear what happens next, but such data could be useful anyway. Availability of information, which assumes uncertainty in the market, can also be useful. For example, you can use this signal of uncertainty in order to fix the profit or just to abandon a trade.

Non-zero values in extreme bar cells

The fact that buying and selling volumes do not run out at the extreme point of the bar (the auction theory concept) means, at least in the short run, that the trading will continue at this price level and its repeated test is quite probable.

General volume, which was traded in the bar

Do not forget traditional data, such as general volume and price range. The footprint does not discard the basic analysis of correlation of price and volume – it supplements it. However now, a trader can see the general delta, which reflects direction of the order flow, apart from the general volume for a certain period of time. It might be very useful to compare price range, volume and delta values both from bar to bar and in order to identify correlation of the volume and delta in a specific bar. In order to help the traders, the trading and analytical ATAS platform has the Cluster Static indicator, which reflects these resulting data. The indicator panel can display a number of other values and could be completely customized by a user.

A failed auction

Failed auctions can have various forms. In fact, a failed auction is a situation when buyers or sellers are not active at a certain price level, in other words, this is a situation when neither of the parties is interested in current prices. Learn to differ a really failed auction from a seemingly failed auction. Let us imagine a situation when the market went up to the key level of resistance on a big volume immediately after it was opened and then the volume went down to minimum values at extreme price levels. Let us consider another situation for comparison: the market shows weakness at the price extreme points during lunchtime, when there are no news. In the first case, there is a sufficient potential for execution of trades, in the second case, it is reasonable to stay outside the market.

We can see in the below example that the volume goes down while the price slowly moves upward and that the next buying round (the dark-green cell) cannot push the price higher.

This example clearly demonstrates how analytical puzzles are assembled into a general picture. First of all, pay attention to how the market moves, bar after bar, to higher prices. Auctions failed at top points in each of these bars. Then the order flow demonstrates a relatively strong buying activity in the form of the dark-green footprint cell (768 sales against 1,822 purchases). This cell demonstrates a strong imbalance, nevertheless, the best price after the strong buying activity makes one tick movement and volume fall down sharply in the above cell.

Then we see how the strong buying activity turns into the strong selling activity in two neighboring cells below. Our example clearly shows how to read the footprint. If we face such a situation at a significant price level (for example, at the extreme level of the previous day, at the boundary of a multiday range, at the top boundary of the value area and so on), this scenario will be an ideal signal for entering the market. However, we do not urge you to look for patterns that simulate this scenario exactly. We speak about how to learn to assess various aspects correctly in a specific context.

Movement of the Point of Control (the high volume node)

Identification of the time when the instrument is traded and in which price area is an important component of real time trading. This is a part of the answer to the question – what is the context?

It is also important to understand in what direction the trading moves.

If we look at price bars only (which are not a footprint), we will not be able to assess the real situation in the market. However, if a trader tracks POC (a high volume node) movement, it would help him to identify a real market trend in the set timeframe. The biggest volumes are marked with black frames in the sequence of bars below. This avoids the need to calculate the prices, at which the biggest volumes were displayed in the bars, in your mind.

Divergences (discrepancies) between the direction of the price movement and general delta

Delta-divergences can have different forms, but, in the end, they show one thing only: the traders’ opinions do NOT correspond with the price movement. There is a behavioral disagreement. In fact, this price movement lacks aggression, which is usually required for supporting further price movement in a certain direction. Such divergences may appear in sequences of any number of bars.

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Attention! Exchange trading is connected with financial risks and is not good for all investors. This publication is of informative nature only. Carrying out trades in the financial markets can result in losses. Make sure you understand all risks and have relevant knowledge and experience for exchange trading before you start using trading ideas.