You’re about to learn you how I used footprint charts to reinvent my trading career when I was struggling and debating quitting. This is after I had already made 7 figures as a trader!
After reading this post you will understand the edge footprint charts can provide by helping you to validate your trades, improve your entries and exits, and spot major reversals.
The Need for Footprint Charts
In 2008 I was 5 years into my professional trading career at GPC in Chicago. At GPC we were all mostly level 2 traders, using the book to determine when large buyers or sellers were entering the market.
A level 2 quote used to give traders the ability to read order flow as well as give logical levels to for stops and my take profits.
Around 2008 algorithms began to account for over 50% of market volume. This resulted in a lot of false or fake orders in the market making a level 2 very difficult and at times impossible to read.
I had hit a peak in my career just like most other level 2 traders were experiencing. I reached a point where I had to adapt my trading strategy or my career would have been over.
Introducing Footprint Charts – Key Concepts
Footprint charts bring market demand and supply to life. They allow you to interpret order flow easily helping you to reduce your risk while also maximizing your profits.
As you’re probably aware, the price of any security depends on whether you wish to buy or sell. If you wish to buy the price you pay is the ask or the offer price. If you wish to sell the price you pay is known as the bid.
When you want to buy a security, in this case the e-Mini S&P 500 futures contract seen above, the price you will pay is the ask. (what the counterparty is asking) If you wish to sell the price you will pay is the bid. (what the counterparty is bidding)
The act of buying is known as taking the offer or lifting the ask. The act of selling is known as hitting the bid.
As a trader, odds are you are familiar with a Trading DOM which stands for depth of market. This display layouts out all of the limit orders in the market. In the example below the current market on the ES (S&P 500) 3010.75 by 3011.00.
Sellers are prepared to offer 380 contracts for sale at 3011.00 – their asking price.
Buyers are prepared to purchase 1156 contracts at 3010.75 – their bidding price.
Since the introduction of algorithms as mentioned earlier, a lot of the orders resting in the book will never trade as the algorithms pull their orders out of the market. However, with footprint charts we can see the data that we’re actually interested in, executed orders. Not the transactions that are advertised of potentially trading in the trading DOM.
Note: Throughout this post I will be referencing the ES as it’s the primary contract that I trade. However, footprint charts are valuable when looking at any market including equities, forex, oil, and gold.
The chart above is very basic footprint chart of the ES using one minute for the time period. By the end of this post we will have added a lot more features to this chart.
First, let’s zoom into the candle on the far right to learn the ins and outs of a footprint candle.
On the above candle the volume highlighted in green 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.
You will also notice the candlestick outline designating the Open, High, Low, and Close for this bar.
What’s important to understand is that because a price quote is made up of a bid and an ask price you have to look at the chart diagonally. As you can see above, when the price quote was 2874.00 by 2874.25, 113 contracts traded on the bid at 2874.00 and 173 contracts traded on the offer at 2874.25.
Now that you have a basic understanding of a footprint chart lets take a look at how you can begin to use them to determine potential breakouts, reversals, support, and resistance.
Buy and Sell Imbalances
What makes the price of security move? It’s pretty simple… buyers and sellers.
If we have more buyers than sellers price is driven up. If we have more sellers than buyers price is driven down. That’s economics 101…
Wouldn’t it be useful to be able to quickly visualize when large buyers or sellers enter the market?
To do this we can look at buy and sell imbalances on a footprint chart.
On the chart above you will notice some of the volumes highlighted in red and blue.
The ones highlighted in blue are buy imbalances because they occurred on the offer and were 400% higher than the corresponding bid.
The ones highlighted in red are sell imbalances because they occurred on the bid and were 400% higher than the corresponding offer.
Note: 400% is what I use for my buy and sell imbalances. Most charting packages allow you to change this.
Let’s take a closer look at the candle that formed at 12:07. (far right side)
You will notice a buy imbalance highlighted in blue at the 2863.75 level. This is due to the 153 trades that took place on the offer at 2863.75 versus 16 trades that took place on the bid at 2863.50. 153 divided by 16 equals 9.56, over a 400 percent difference.
On the same bar you will notice a sell imbalance as well at the 2864.75 X 2864.50 level.
Imbalances signal large buyers or sellers entering a market. Those buyers or sellers are likely to defend their positions. Essentially this is a legal way of trying to front run large players in a market.
Stacked buy and sell imbalances are very useful to determine support and resistance levels. If a trader or traders are aggressively buying or selling at a certain price level, seen by stacked imbalances, odds are they are going to defend this level if price comes back to it.
On the above chart you will notice several buy imbalances that are stacked on top of one another on the 11:45 candle from 2866.26 to 2867. On the proceeding candle at 11:50 candle sellers pushed price down into the stacked buy imbalance but failed to go any lower as buyers defended this zone resulting in a rally.
It’s very beneficial to project these price zones forward on your chart when you see them occur to designate future support and resistance areas. Notice I said zones. You may have 4 or 5 imbalances stacked on top of one another with a few price levels in between without imbalances. These should still be considered valid stacked imbalances.
Imbalances can be used in a number of ways and we will look at some real trade examples at the end of this post.
Unfinished Auction Order Flow
Security prices move up and down in auctions that seek to discover where buying and selling can occur, thus creating a market.
Prices move up until they reach a point that nobody is interested in buying. Likewise, prices will move lower until they reach a point that nobody is interested in selling at that level.
On the above chart you can see the zero bid print on top of the price bar telling us that the market never ticked above this level. There simply wasn’t enough buyers.
You can see the same scenario on the sell side with the zero print on the offer.
You can see these levels on a footprint chart at the top of bars where 0 trades occured on the bid signaling price couldn’t go a tick higher because there were no passive buyers looking to buy. Likewise, we can see where there were no passive sellers when there is a 0 on the offer.
Unfinished business or an unfinished auction occurs when there isn’t a zero at the top of the bar on the bid or bottom of a bar on the offer.
Unfinished auctions act like magnets drawing price back to them due to the fact that it’s likely the last buyer in the auction wasn’t found in upward trend or the last seller in a downward trend.
Bullish trends end when the market reaches a price where no passive buyers are looking to buy.
Bearish trends end when the market reaches a price where no passive sellers are looking to sell.
A passive buyer or seller is simply a buyer or seller who is more interested in long term gains versus someone like yourself day trading.
Unfinished auctions in themselves aren’t a trading strategy. As you will see later, I use them to help determine if a high or low was put in for the time period I’m looking at as well as use them from price targets.
Footprint Volume Profile
The above chart already includes the buy and sell imbalances we discussed earlier. You should be able to spot all the unfinished auctions by now.
The final element I personally add to my footprint charts is a volume profile. The volume profile can be seen inside of each candle by the grey shading which is proportionate to the amount of volume that traded at a particular price level within that candle.
The volume profile allows you to quickly visualize potential reversals and the strength of a potential move.
I determine the strength of a potential reversal by the shape of the volume profile. We discuss this more later but for now just know you want to see a “b” shaped volume profile when going long and a “p” shaped volume profile when going short as seen below.
Footprint Trading Strategies
There’s a number of different footprint chart styles and ways they can be implemented into your trading strategy.
I personally use footprint charts to help determine reversals and key support and resistance levels. Footprints can be used to validate trades and manage positions once in a trade in terms of stop losses and take profits.
With that being said, let’s look at some examples.
Bullish and Bearish Reversals
Not all reversals are created equal, or at least that’s what I think 🙂 When determining whether price is going to reverse using a footprint chart, I want to see the following four things:
- The majority of the volume should have traded at the high of a candle for a bearish reversal and the low of the candle for a bullish reversal. When this occurs it’s a higher probability that a reversal is going to happen due to the fact that bulls or bears, depending on the direction of the move, did everything they could to take prices higher or lower but failed.
- You want to see buy imbalances for a bullish reversal and sell imbalances for a bearish reversal as those large traders are likely to defend their positions.
- No unfinished auctions. We want to confirm that all buyers (bearish reversal) or sellers (bullish reversal) have been exhausted.
- Higher volume relative to surrounding candles. Simply put, more volume equals more likely …
On the chart above you can see the bearish reversal met three of our conditions.
The majority of the volume occurred in the top of the footprint candle. When markets are moving fast you can quickly find these setups by looking for “p” or “b” shaped volume profiles.
“p” shaped profiles are going to be bearish and “b” shaped profiles are going to be bullish.
Next we had no unfinished business as can be seen by the 0x22 bid/ask print at the top of the candle. Finally, you can see volume spiked relative to surrounding candles.
The bullish reversal met the same conditions as the bearish reversal but we also had a large buy imbalance of 1037 at 2869.50. Remember, an imbalance of this size are large buyers entering the market who most likely will defend their position.
Intraday Support and Resistance Levels
Footprint charts are amazing for determining intraday support and resistance zones in just a few steps.
Any time any of the three events below occur, draw an extended horizontal line until that level breaks.
- Unfinished auctions
- Large buy or sell imbalances relative to surrounding bars
- Stacked imbalances
On the chart above you can see the stacked imbalance would have given you a logical place to go short. On the second retest of the stacked imbalance we had a “p” volume bar form without any unfinished auction, thus signaling weakness.
A logical place to take profit had you taken this trade could have been at the unfinished business zone near $2847.00.
Once the stacked imbalance broke, a logical take profit had you been long would have been the unfinished auction near 2855.00.
Long Term Support and Resistance Levels
Long term support and resistance levels can easily be found by simply switching to a daily footprint chart and using the volume profile to highlight heavily traded zones.
You will be amazed at how well this works. Price tends to bound back and forth between these ranges.
When you’re looking at them intraday and a support or resistance level holds and you generate a signal from your system you can target the next support or resistance zone.
One of the key elements to any day trading strategy is determining which setups are valid. With my personal strategy I use a number of footprint validations. Let’s look at some examples.
Using the same chart from earlier, let’s assume your strategy generates a long signal anytime between 12:55 and 13:00. I would look at the chart and the stacked imbalance right above which is exactly where the up move stopped. I would pass on a trade until this level was broken knowing that the stacked imbalance is going to be resistance.
This next chart shows how looking at the volume profile at the start of a move will help you determine the strength or validity of a signal.
The green checkmarks show where we had either b volume profiles for bullish moves or p profiles for bearish moves.
The red x’s show you where we didn’t have an ideal volume profile to go long or short.
Notice how all the invalid volume profiles marked with the red x had very little follow through when compared to the valid volume profiles.
Improving Trade Management
Most new traders really struggle once they enter a position. They’re like a deer caught in the headlights of an oncoming car.
They take profits too fast and get out of losing positions too slow. Sound familiar???
You already have seen how you can use unfinished auctions for price targets.
Another option is to trail your stop until it’s hit. You can drop down to a shorter time frame and trail your stops behind large imbalances and high volume areas as seen above.
Footprint Chart Software
It’s time for you to get your hands dirty and start trying footprint charts for yourself! Below are a number of options to consider for footprint charting platforms.
Market Delta – Who better to start with than the founders of the footprint chart. A number of brokers provide Market Delta for free when you open an account. Market Delta is known as one of the best footprint charting softwares on the market.
Sierra Charts – This is the charting package I personally use for my footprint charts and where the images were generated from for this post. Sierra calls them number bars. It’s offered for free with my futures broker but a number of brokers support this charting package. (View Brokers Here)
Sierra Charts are extremely light weight demanding very little from your processor yet the platform is extremely robust.
Xtick Charts – For you forex traders looking for a footprint chart package, XTick delivers. Unfortunately, I haven’t seen any functioning products for MT4 or MT5. If you have, please leave a comment!
AMS Trading Group – They are the founders of DeltaPrint. I’m not familiar with them but they offer a free trial so check them out.
Ninja Trader – Ninja trader pro suite offers an order flow package that looks great. Ninja Trader is a popular platform for a lot of futures and forex traders.
Bookmap – Bookmap is a highly visual trading platform for order flow traders. The pricing is pretty reasonable and they have a free version to checkout.
Jigsaw Trading – Jigsaw offers a platform very similar to bookmap.
Think Or Swim – TD Ameritrade offers a great charting package for free but unfortunately they don’t support footprint charts. I posted it as I know a ton of people are searching for it.
Trading View – Unfortunately TradingView doesn’t support footprint charts yet but I expect they will in the near future. If you haven’t checked them out yet, you should. They offer some sweet charting options for free and it’s a huge community.
Unfortunately, I’m not familiar with any entirely free charting packages that support footprint charts. If you are please leave a comment below!
Footprint charts have drastically improved my trading over the years. Implement them properly, and you will see the same results.
You can build an entire trading strategy around footprint charts as many successful traders have. Or you can use them to validate your trade signals as I do.
The best traders in the world find trading is effortless. However, this doesn’t mean it doesn’t take hard work. It’s effortless as a result of all the preparation which is where all the hard work comes in. Which is exactly what you’re doing right now.
You should design and build your trading system till it reaches the point where you just become a processor filtering through the information the market provides. Once all of your conditions are met you enter a trade. There should never be any second guessing.
This is when trading becomes effortless. I hope this post helps you on that journey!
Feel like you still need some help or guidance? Did you like this post? Join Jumpstart Trading. Hey it’s free…
Adam is the founder of Jumpstart Trading. He began is professional trading career in 2003 at GPC which was the second largest proprietary trading firm in the United States. Since then, he has achieved a top 10 performance at a prestigious national trading firm, developed multiple trading strategies and complex trading algorithms, and trained thousands of traders in person and online. He specializes in Index Futures, Oil Futures, U.S. Stocks, and Forex.