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”.

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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 Business – 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!

Tips for Using Cumulative Delta to Confirm Price

This week we had our annual online Summer Slam event and one of the themes that came out of it was cumulative delta. Since the “delta” concept is so central to the Footprint, we felt it appropriate to take a break this week and show some examples of cumulative delta.

Trading price alone can be a difficult task. Using correlated markets, market breadth, and order flow can be very helpful when confirming a price move. Cumulative delta shows order flow over time.

Cumulative delta plots the underlying order flow for a session or multiple sessions. It is computed based on each trade, so it provides a very accurate reading of order flow for the selected time period.

Cumulative Delta Concepts

Common uses of the cumulative delta would be confirm price direction. For instance, if price is trending higher, look for the cumulative delta to be trending higher each step of the way. If price trades a new high BUT the cumulative delta does not, then it may be a sign order flow is beginning to reverse and price will soon follow.

Below is a recent example from yesterday showing a divergence between the price of the S&P 500 (ES) and its cumulative delta. As noted in the illustration above, it is vital to see price and delta confirm each other. Otherwise, it is likely you are just witnessing a test of extremes and price will be rejected or rotate back.

cumulative delta 1

Another recent example from 2 days ago in the ES shows how cumulative delta was not confirming the breakout to new price highs. It is important to note that sometimes price will lead. When this happens, watch out for a violent “catch up” in cumulative delta, often producing a jump in price in the direction it was originally heading.

cumulative delta 2

If you want to add this to your chart do the following:

  1. Right click the chart and Add Study
  2. Choose Volume
  3. Set the Highlight column to Delta Day as shown below.

“Open Drive”, the Most Powerful Opening Type

Read more about opening types in this postthis onethis one, and this one.

In this post we focus on the Open Drive opening type pattern as described on page 63 of Mind Over Markets. The primary benefit of identifying the opening type is to evaluate potential market conviction early in the day. We then use the Footprint chart to qualify the trading opportunities that present themselves by gauging market conviction in real time.

RULE OF THUMB: Use the open type for market context and the Footprint to confirm and execute your ideas.

Open drive’s are very initiative in nature and happen because longer time frame traders have made up their minds before the open and are generally biased in the same direction. The market is “one sided”, meaning there is either very dominant buying or selling, but not both. The market quickly auctions in search of a price to draw in opposite response participants and find balance.

The strength of the open often sets the tone for the day.

By definition, open drive occurs when a market opens and immediately auctions in one direction and never returns and trades back through the opening range. The opening can serve as a solid reference point with this open type.

Open Drive (2)

The market moves quickly and in one direction, so act quickly. Otherwise, the market will continue to run away from where you wanted to get in. With this open type, it is usually best to enter with market orders so you don’t miss the opportunity to enter the market.

Often you will see this open type occur as a gap outside the priors days range, but it doesn’t have to be that way. It can occur inside the prior days range.  The Market Profile® chart below show how corn gapped outside the prior 2 days consolidation and quickly auctioned higher.

6-10-16 Corn open drive market profile

Now look at the Footprint® chart of the same move. This is a 2 minute chart to show how quickly the move developed. The Footprint helps keep you on the right side of the trade.

6-10-16 Corn open drive footprint

Here is what you want to look for on the Footprint® Chart.

  • If we are gapping open (outside prior days range) your radar should be up for a potential Open Drive event. Does initiative activity become evident on the open?  The Footprint makes this much easier to see because you can witness in real time what is happening.
  • Sometime it is not what you see, but what you don’t see. Do you see aggressive sellers selling aggressively into the gap higher (see below)? No, they didn’t show up. This can be a tell tale sign of the strength and the market will search higher prices until it encounters a big enough reaction to counter the initial move.
  • Watch the Footprint for immediate initiative behavior. Strong buying will be blue or green (typical colors) and strong selling will be red.
  • Use the Footprint to keep you in the trade longer. If you are fortunate enough to spot the move early and get in the market, let the Footprint tell you when the move in beginning to weaken or reverse.

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Use the Footprint Chart On “Open Test Drive” Opening Type

Read more about opening types in this postthis one, and this one.

In this post we focus on the Open Test Drive opening type pattern as described on page 65 of Mind Over Markets. The primary benefit of identifying the opening type is to evaluate potential market conviction early in the day. We then use the Footprint chart to qualify the trading opportunities that present themselves by gauging market conviction in real time.

RULE OF THUMB: Use the open type for market context and the Footprint to confirm and execute your ideas.

Open test drive’s are initiative in nature but don’t happen right at the opening bell like the Open Drive opening type.  By definition, open test drive occurs when a market opens and then tests beyond a known reference point to see if there is any new business. The market then reverses and quickly auctions back through the open and continues to drive opposite the initial move, exhibiting strong, initiative activity. Often the extreme price established at the reversal soon after the open holds for the entire day.

Open Test Drive (1)

Before the market can find its direction it needs to first test in the opposite direction to see if there is any “business” to do. There are a couple of common sayings in the market that sum this up:

Break to Rally – this means the market needs to test lower prices first, before rallying. If the test lower lacks volume and initiative activity, buyers can try the higher prices with conviction because lower prices didn’t draw in more participants.

Rally to Break – this means the market needs to test higher prices first, before breaking (selling off). If the test higher lacks volume and initiative activity, sellers can try the lower prices with conviction because higher prices didn’t draw in more participants.

This “testing” behavior provides traders the assurance of knowing there is no activity above or below (depending on the initial direction of the probe) before moving the market the other direction with confidence.

Often you will see this open type occur after a period of consolidation. Look at the Market Profile® chart below, and then how the Footprint® chart helped in confirming the open and kept you on the right side of the trade.

5-27-16 Open Drive ES Market Profile

After 2 days of a tight range and low volume, the market opened just above the consolidation range and very briefly tested inside the range to see if aggressive sellers would show up. When they didn’t it gave the initiative (aggressive) buyers the confidence to buy. Price quickly auctioned higher and never looked back for the entire day.

5-27-16 Open Drive ES 5 min Footprint

Here is what you want to look for on a Market Profile®

  • Market opens and probes beyond a known reference point to test participation.
  • Market reverses and quickly trades in the other direction, often establishing one of the extremes for the day.

Below are is a normal Market Profile® and the same one but split to show the 30 minute progression.

5-27-16 Open Test Drive ES Split Market Profile

5-27-16 Open Drive ES Split Market Profile

Here is what you want to look for on the Footprint® Chart.

  • Does initiative activity become evident on the open?  The Footprint makes this much easier to see because you can witness in real time what is happening.
  • Take note where the open is occurring – near overnight high, low, above/below prior day’s range, etc. Use this information to look for clues on the Footprint.
  • Watch the Footprint for failure and play for a trade in the opposite direction, recognizing the potential. Use the Footprint to keep you in the trade longer. 

Here the open with the initial move a few ticks lower. There was little interest from the aggressive traders to push price lower, therefore, participants take it the other direction to provoke a response to the upside. That did it! The Footprint confirmed this by showing buyers with conviction (green footprints).

5-27-16 Open Drive ES Footprint

Here is the same move but using a 5 min chart

This shows how quickly this move occurred and with very little pullback. It is very important to note, with this type of open you must be aggressive and get in early. This is not easy to do, but the Footprint will help give you the confidence to spot the setup sooner than you would otherwise because you can see the order flow.

5-27-16 Open Drive ES 5 min Footprint

 

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