Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today we are going to continue the series on Technical Analysis and why it can be such an important asset for new or experienced traders. In this series I am covering some of the different Technical Analysis and Indicators which can be used to help determine market movement and sentiment when trading. For Part XVI the focus will be on how to read and use Footprint Charts.
Footprint Charts
The footprint charts are a deviation away from the traditional candlestick charts and provide additional information such as trade volume and order flow along with showing the price action. Due to the additional information being displayed, it is multidimensional in nature and is used by investors to gain more information for analysis. Traditional candlestick charts merely show the price, so a Footprint Chart is a tool which offers the benefit of analysing multiple variables in a focused diagram.
How to use Footprint Charts
The most important thing a trader needs to understand when considering using a Footprint Chart is the fact there are several types of them available. Before we look at the different types, I will quickly explain how to read the Footprint Chart.
On a standard Footprint Chart candle, the the closed transactions are highlighted in green. This is the amount of volume that occurred as a result of market orders hitting the bid. The volume highlighted in red occurred as a result of market orders taking the offer.
There is also an Open, High, Low, and Close for the candles used within a Footprint Chart. As the prices quoted is made up of a bid and an ask price, you have to look at the chart diagonally.
The below image of standard Footprint Candle Chart from from Jumpstarttrading.com
The Point of Control, also know as the POC, is the price level within the chart where the highest level of volume was traded for a given session. This helps us determine whether buyers or sellers are the aggressor during a given session and to designate areas of support and resistance.
The below image of Footprint Candle Chart showing the POC of each candle highlighted in a yellow box is from from Jumpstarttrading.com
Footprint charts give us the ability to see the data that we’re actually interested in, which is the executed orders. Some of the more common Footprint Charts used by traders include:
Footprint Profile: This displays the volume at each price via a vertical histogram, along with the regular footprint bars. This will inform traders at which price liquidity is pooling.
Bid/Ask Footprint: This applies colour to the real-time volume and makes it easier for traders to read the footprint, displaying whether the buyers or the sellers are the responsible parties for influencing a price move, with the ability to see the buy and sell imbalances the biggest benefit to the Bid/Ask Footprint.
The below image of Bid/Ask Footprint is from Jumpstarttrading.com
Delta Footprint: This displays the net difference at each price between the volume initiated by the buyers and the volume initiated by the sellers. It will help a trader confirm whether a price trend has begun and if it will continue or potentially reverse, shown by colours on the chart. It is calculated from the difference between buying and selling power, by taking the difference of the volume that traded at the offer price and the volume which traded at the bid price.
Volume Delta = Offer Volume – Bid Volume
If delta is greater than 0, buyers are the aggressor as more contracts traded on the offer than the corresponding bid.
If delta is less than 0, sellers are the aggressor as more contracts traded on the bid than the corresponding offer.
The below image of a Delta Footprint is from Jumpstarttrading.com
Volume Footprint: Finally, this Footprint segments the volume. It differs from traditional charts as it not only does so by time, but also by the price, allowing for traders to determine points of capitulation. It displays the of volume traded at each price level for a given asset over a user defined period of time.
The below image of a Volume Footprint is from Jumpstarttrading.com
Now that we have an understanding of the different types of Footprint charts, understanding how to read and apply them is imperative. With the additional information on the chart, a trader looks at the Footprint Chart and tries to determine which information helps to identify the clues regarding a particular assets price. This can happen in many ways, including
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Imbalances – Lopsided amounts of buying or selling
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Order blocks – Large amounts of contractual volume occurring
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High volume nodes – Areas where heavy amounts of volume collect
*All three of these identify an area of support/resistance or a point that precedes an expansion in price.
Different Trading Strategies to make use of with a Footprint Chart
Stacked Imbalances
This makes use of bid/ask Footprint and shows how many contracts trade at the bid/ask point. It shows a lopsided amount stacked vertically in a price range, and can be used as an indication of support and resistance levels. Traders can find imbalances which can then be used to look for reversals or slow down of the momentum of an asset. Basically, they are simply multiple buy or multiple sell imbalances in a tight price range.
The below image of a Stacked Imbalances is from Jumpstarttrading.com
Unfinished Auctions
These are unique trading ideas which are specific to footprint trading. The idea behind it is that each price sees an auction between the buyers and the sellers. This happens within the one candlestick/bar. It is noted that when an extreme price fluctuation happens, generally a certain price or extreme on the candle wick, it is taken that its buyers or sellers only. This is called an unfinished auction.
The below image of an Unfinished Auction is from Jumpstarttrading.com
Volume Profiles
This method looks at points of support and resistance through areas of high volume, as these are often areas where traders close or open their trades. When a trader makes use of Volume Profiles they need to look out for four important pieces of information.
High Volume Nodes (HVN): area of high volume relative to surrounding nodes
Low Volume Nodes (LVN): area of low volume relative to surrounding nodes
Point of Control: price level where the highest level of volume traded for a given session
Distribution: price in relation to HVN’s
High volume node’s act like gravity. They tend to attract price and try to hold it there. Conversely, low volume nodes are areas with very little gravity. The market often rips right through these levels, not staying for long because there’s not much gravitational pull (resistance).
The below image with an example of a Volume Profile is from Jumpstarttrading.com
Conclusion on using Footprint Charts for TA
As a trader, whether it be day trading or long term trading, using Footprint Charts can be very beneficial in view the asset in a different mode. Most of use would be users of candlestick charts, which are beneficial in their own way, but Footprint Charts allow users to view additional information such as trade volume and order flow along with showing the price action. There are different types available, which each are used for showing different information. Similarly, there are different strategies for using Footprint Charts, including Stacked Imbalances for showing reversals or a slowing of momentum, Unfinished Auctions for seeing a fluctuation in price, and finally Volume Profiles for finding levels of support and resistance. Therefore Footprint Charts are best for analysing multiple variables in a focused diagram, and while false signals can be produced similar to other TA, having a combined amount of information can help to reduce the risk of false signals.
As stated whether you are experienced or new, Technical Analysis can always be a useful asset when trading. Just remember it is not guaranteed and nobody can predict the future, no matter how certain you believe the patterns to be. It is always just another tool of the trade to help make more informed decisions when trading. It can be easy to get caught into believing you have figured out exactly what will happen by making use OF Footprint Chart, but a true trader will always remember nothing is certain in price action.
It is important to use the Footprint Charts with a trading strategy, and even combining different types of Footprint Charts to get stronger signals for understanding the strength of a trend, support and resistance levels, and any potential reversals. Always zoom out, if trading on a 15 minute chart check the 1 hour or 4 hour or even 1 day chart to give you a better idea of the overall trend strength via the A/D Indicator, along with checking the trend strength of the larger overall trend compared to short term ones.
You can find the previous parts to the series here:
Technical Analysis - Part I - Exponential Moving Average (EMA)
Technical Analysis - Part II - Relative Strength Index (RSI)
Technical Analysis - Part III - Bollinger Bands (BB)
Technical Analysis - Part IV - Moving Average Convergence Divergence (MACD)
Technical Analysis - Part V - On-Balance Volume (OBV)
Technical Analysis - Part VI - The Average Directional Index (ADX)
Technical Analysis - Part VII - The Aroon Indicator
Technical Analysis - Part VIII - The Accumulation/Distribution Indicator (A/D)
Technical Analysis - Part IX - The Supertrend Indicator
Technical Analysis Part X - Parabolic SAR Indicator
Technical Analysis Part XI - Support & Resistance Levels
Technical Analysis Part XII - Fibonacci Retracement Levels
Technical Analysis Part XIII - The Awesome Oscillator
Technical Analysis Part XIV - The Arnaud Legoux Moving Average
Technical Analysis Part XV - Ichimoku Cloud
Also feel free to check out:
I hope this post was beneficial and of some use, and I plan on continuing the series with the next instalment focusing on Heikin Ashi Candlesticks. Of course each technical analysis provides different beneficial information, so combining your most trusted and favourite ones can be the best strategy for finding entry and exit points when trading.
Have a great day.
Peace. CryptoGod-1.
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