Using the Footprint Chart to Analyze Forex Pairs

The Footprint is normally used to track “volume at price” and display how volume is entering the market and where the order flow is going.

With spot forex (foreign exchange) pairs we use “trades at price” instead of volume and build Footprint® charts that let us see inside the chart and track trading activity.  This works similar to using volume but instead uses trades at the bid and ask and creates Footprints®.

Below is a sampling of various pairs and different Footprint® chart types. Only Footprints® allow traders to “see inside the chart” and see what is going one before others have a clue.

Setup

To setup the Footprint chart to plot “trades at price” right click on a Footprint® and choose Modify FP… and set the Data parameter to be Trades instead of Volume.

Clicking OK will change the Footprint® to plot trades instead of volume.

Clicking the Style menu provides the different Footprint® styles to choose between.

2 Forex Trade Footprint® Setups

It is very important to note that the Footprint® is a chart, not a trading system. There are literally hundreds of unique patterns that traders have identified and give them an edge in the market.

Here are a 2 worth noting, but we always encourage traders to look at the charts with fresh eyes and see what makes the most sense to you and your style of trading.

Progression of Most Traded Price

One of the best ways to confirm a trend is by seeing the most traded price migrate to higher and higher prices (up trend) or lower and lower prices (down trend). Because the Footprint® lets you see inside the bar, the information is at your fingertips. No pun intended. 🙂

In the chart below, the cyan (aqua) Footprint® within each bar highlights the most traded price. It shows which price had the most activity.

To plot the most traded price a different color right click a Footprint® and choose Modify FP… and click the box in the follow the windows below.

Here a very similar chart but using a single color for the Footprints®. Sometimes it is easier to see this way.

Buy/Sell Cluster Exhaustion

This particular pattern is only visible using an imbalance Footprint®. We have noticed it is quite common to get 2, 3, or more back to back imbalance Footprints® which often occur at the end of a bar.

Specifically in spot forex markets, we have noticed this pattern to represent near term exhaustion and a counter move, aka pullback, to happen in the very near term. We are not saying this is a long term reversal pattern, however it could turn out to be the case. It is a unique pattern only visible when seeing inside the chart with Footprints® and can be used to initiate a trade or take profits.

This pattern can be used with additional technical analysis as a way to qualify entries and exits.

Here is a video describing this setup in more detail.

The Stock OKE was not so “OK” Today

Today was a very busy day for the stock OKE after some M&A news it announced.

We wanted to take the opportunity showcase the stock using the 5 different Footprint types available. All the charts are are using a 5 minute time frame and each offers a unique perspective of the price action.

Before we begin, here is what a 5 minute candle chart looked like.

Imbalance Footprint

Bid Ask Footprint

Volume Footprint

Delta Footprint

Profile Footprint

Tracking Shifts in VPOC (Volume Point of Control)

There is a built in marker inside the Volume Profile study which allows you to be notified when the volume point of control (VPOC) shifts from one price to another.

Often these shifts happen and you never realize it, sometimes missing a trading opportunity.

When POC Marker is enabled:

  • an up arrow will plot beneath the bar it occurred when the VPOC shifted higher.
  • a down arrow will plot above the bar it occurred when the VPOC shifted lower.

To add this to your chart, first add a volume profile study. Click the Display tab.

The yellow “up” arrow on the chart below signifies the VPOC shift higher during this bar.

Learn more by visiting the online help.

How to Plot and Trade Naked POC’s (Point of Control)

A useful way to identify support and resistance is to reference naked POC’s. A naked point of control represents the high volume price within a bar that has not been pierced by a subsequent new bar. It is represented as a line drawn across the chart into the future until price trades that price again. Once the price trades the lines stops drawing.

Look at these examples to see how it is visually represented on the chart. One of the benefits of MarketDelta is this technique can be applied to any time frame chart, not just the typical 30 minute bars. These can be applied to any interval type available on Footprint charts.

How to Trade Using Naked POC’s

The best way to apply naked POC lines is to identify support below and resistance above.

DEFINITION – POC is short for “point of control”. A POC is a price that attracted a lot of trading volume in the past, so the idea is if price approaches it again in the future it will serve as a stopping point, at least temporarily. Traders who traded heavily there in the past will most likely defend it again in the future. For this reason alone naked POC’s become price attractants but also price stoppers.

  • In an uptrend, naked POC’s will be created below as price trades higher, creating good support levels to refer to when price pulls back.
  • In a downtrend, naked POC’s will be created above as price trades lower, creating good resistance levels to refer to when price pulls back.

Settings (How to Add to MD Desktop)

  1. Right click and choose Modify FP.
  2. Click HiliteIt
  3. Add POC and check the box “Extend”.

Request a 14 demo of MarketDelta here. It comes complete with data, charting, and sim trading.

How To Interpret Stop Order Activity

One of the most obvious patterns that Footprint Charts can be used for is spotting when stops are triggered. What you witness is all the trading activity occurring on one side of the market, either the bid side (in the case of sell stops) or ask side (in the case of buy stops).

One trading strategy is to look for this stop pattern and fade it, with the understanding that it is capitulation and the move has exhausted.

Below is a bid ask footprint chart of gold futures shows a double top that is tested a 3rd time and triggers stops about 10 ticks above the high. It is evident because all the trading occurs on one side. This is typical of a stop being triggered.

Here is the same gold chart but shown using the delta Footprint.

In some cases stop activity is the start of a move, not the end. So you must be prudent when fading stops activity.

ADVANCED

A more complex pattern to watch for is: (1) stops getting triggered and then (2) a bouncing / chop pattern on the chart. These bars will print onto the chart extremely fast and represent lack of liquidity as the market digests the triggered stops and liquidity fills back into the market. For #2, this only happens on a point and figure, renko, range, or Heiken Ashi source type.

In observing this pattern many times, it is the combination of stops being triggered and the lack of liquidity that often signal capitulation and produce and opposite response (reversal).

Unfinished Auction in Bund

One of the unique patterns evident when using Footprint charts is the unfinished auction pattern. This pattern is best viewed using the bid x ask footprint or imbalance footprint and is present at:

  • highest price of a bar
  • lowest price of a bar
  • both

and when that price contains volume on both the buy and sell side. It is easiest to understand when looking at a chart. The first 2 arrows show the pattern present. The 3rd arrow does not exhibit the pattern because there is no volume left of the “x”.

INTERPRETATION

When this pattern is present the market hasn’t yet exhausted itself and buyers and sellers are still present. When this pattern occurs, the expectation is for the market to retest that price level rather soon (30 mins or so).  Some traders apply different time parameters to the re-test but 30 mins is a good rule of thumb.

This chart was of the Bund (symbol = DB in MarketDelta) and is the continuation of the zoomed in view above.

RULES OF THUMB

When the market is testing highs or trending higher, focus more on the high price of the bar for this pattern.

When the market is testing lows or trending lower, focus more on the low price of the bar for this pattern.

 

 

“Unfinished Auction” – New Feature

MarketDelta has a cool new technical indicator that is built into the Footprint chart called “unfinished auction”.

An unfinished auction is a unique chart pattern only visible on Footprint charts. It is a price extreme within a bar (the hi, lo, or both) which shows buy AND sell volume. This is best understood if looking at a bid ask Footprint or imbalance Footprint chart.

An unfinished auction is “a price where I expect the market to return”, says season trader speaking in anonymity.  “It’s a pattern I can only see using the Footprint charts and its my edge.”

Notice how the marked prices have BOTH buy and sell volume at that price. The idea behind this pattern is there was enough interest by both the buyers and sellers to create prints at these prices.

TRADING IDEAS & RULES

  • Bars that have a higher high than previous bar and have unfinished business, look for a retest or higher high in the future.
  • If a bar has unfinished business at both its high and low, ask yourself what the current trend is. If trending higher, put your attention on the unfinished business at the high.
  • The example below shows a trending market with unfinished business on each bar that put in a higher high, EXCEPT for the last bar which reversed market direction and did NOT have unfinished business.

 

SETTINGS

Right click on the Footprint and…

Tips on Using the Footprint Chart to Trade Spreads

What is a Spread

For anyone not familiar with spreads, it is the process of buying one futures contract and selling another usually at the same time. Long one and short another. The idea is to profit from the differential between the two. Complex spreads can consist of more than 2 contracts. Here’s a good write up from one of our broker partners about different spread strategies.

How to Plot On a Footprint Chart

Popular spreads are listed as a single symbol by the Exchanges and that is how we recommend viewing a spread on a Footprint chart. Just type the symbol and view the Footprint chart.  

To find spreads in MarketDelta, click More > Symbols Search and search the term “spread”. You can filter by Exchange by clicking the box next to the exchanges.

Another way to trade spreads is to “leg” into it by separately buying the one futures contract and selling the other but this won’t work for Footprints because there will be 2 sets of bid and 2 sets of offers because you are following 2 instruments.

Footprint Chart CL Spread Example

A very popular calendar spread that some of our prop firm trader customers trade is the Crude Oil calendar spread. Nymex crude oil has an contract for each month, so there are many combinations of this spread. A popular one is the current front month against the next month out. Currently that is September – October. So the October price is subtracted from the September Price. The IQFeed symbol is QCLU16-QCLV16.

Putting that symbol into MarketDelta will give a bid ask Footprint chart like this.

CL_Spread_U_-_V

Spreads don’t have a lot volatility but it is still vital to understand how they are trading. The Footprint allows traders to “see inside the chart” and have an acute awareness of volume and order flow for the spread or legs of the spread.

Probably the biggest advantage the Footprint chart provides spreaders is the ability to see exactly how much volume is trading on the bid and offer and track it over time.

Another key benefit is the ability to see this order flow (on the bid or the offer) over time and tally up the delta for each price to see which side is “winning”. In the screenshot below both prices (-0.70 and -0.71) had a negative delta, but -0.71 had a larger negative delta. This was reflecting the current battle very well and price proceeded to step lower.

CL_Spread_U_-_V delta profile

The Footprint chart can really help you know which side of the spread you should be working and provide visual confirmation of why.

If there isn’t an Exchanged traded spread symbol for the spread you trade, just chart the outright contacts symbols on individual Footprints to have a clue for which way it is leaning (see below). Try applying the Volume Profile Study on the right side of the chart to give you the big picture of order flow.

Footprint Chart Notes vs Bonds Spread Example

The screenshot below shows just one example of how you might track a spread using the individual legs. We recommend showing the delta per bar at the bottom and then the delta profile and/or delta per price. Watch for areas of absorption in one or both legs and use that information to your advantage.

In talking with spread traders, there are many ideas and ways they approach trading spreads. The Footprint is a great tool that will help understand the market in more detail, giving you a “leg up” on your competition. 🙂

TY vs US

Gain the confidence and certainty needed by looking at the spread with a Footprint chart. Take a 14 day trial here!

 

Trade Example Using Intermarket Relationships and Footprint

One of the keys to trading profitably is knowing what to look for. One way to judge potential market direction is to look at markets that have a correlation. It doesn’t matter if the correlation is positive or negative, just that it exists and you understand it well. A second key is then judging when a trading opportunity is presenting itself and confirming this movement with the Footprint chart.

In this video Anthony from the MD Trading Room shows a great example and is calling the trade opportunity out before it occurred. This comes through practice and skill, but he then confirms the move with the volume imbalance footprint.

Here is another example of trading correlated markets.

Explaining the Meaning of “Delta”

This week we wanted to continue showing the valuable relationship between PRICE and DELTA. Everyone knows what price is, but delta is a new term for many aspiring traders. Here’s the definition and a video to explain.

Aggressive Buys – Aggressive Sells = Delta

One of the easiest ways to understand delta is to realize that volume is what fuels the market. Without volume price would not be validated. When a trade occurs at a price level a specific amount of volume is attributed. Price discovery is achieved by volume pushing price back and forth to find equilibrium and delta gives a way to see how good of job it is doing.

Delta measures the directional force of volume and provides a quantifiable measure to volume’s impact on price.

So what we encourage traders to do is identify the direction of delta, note recent highs and lows of it, and use it as proxy for where price may be going.

If you want to experience the software take a trial of MarketDelta Charts.

See and learn this in realtime in the MarketDelta Trading Room!