You’re about to learn how I used footprint charts to reinvent my trading career. This is after I had already made 7 figures as a trader!
After reading this post you will understand the critical edge footprint charts will provide you to help 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. The majority of us at GPC were pure Level 2 traders.
A level 2 quote gave us the ability to read order flow as well as determine logical levels for stops and profits.
I would use the level 2 in order to help determine when large buyers or sellers were entering the market and to identify key support and resistance levels. I profited by following large players as they entered the market or by personally taking out support and resistance levels that I knew a lot of retail traders were using as their outs.
Then things changed, real quick…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 that would get pulled, making a Level 2 very difficult and at times impossible to read.
I had hit a peak in my career. Like most other Level 2 traders, the algorithms were making the markets less transparent. 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. Footprint charts allow you to interpret order flow easily, similar to level 2 quotes in the past. Let’s take a look at some of the basics.
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 counter-party is asking) If you wish to sell, the price you will pay is the bid. (What the counter-party 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.
Next let’s take a look at a Trading DOM, which stands for depth of market. This display shows all of the resting 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 – the ask price.
Buyers are prepared to purchase 1156 contracts at 3010.75 – the bid price.
Since the introduction of algorithms a lot of the orders resting in the book will never trade. The algorithms constantly add and pull orders in and out of the market.
Footprint charts give us the ability to 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 (eMini S&P500) as it’s the primary contract that I trade. However, footprint charts are valuable when trading any market including equities, forex, oil, digital currencies, and gold.
The chart above is a very basic footprint chart of the ES using a one minute time frame.
Let’s zoom into the candle on the far right to study the ins and outs of a footprint candle.
On the above candle, the closed transactions 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.
Also notice the candlestick outline designating the Open, High, Low, and Close for this bar.
What’s important to understand is because a price quote is made up of a bid and an ask price, you have to look at the chart diagonally. 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 you have a basic understanding of what makes up a footprint chart. Next let’s take a look at how you can begin to use these charts 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. Economics 101…
Wouldn’t it be useful to be able to quickly visualize when large buyers or sellers enter the market? You can!
To do this we can look at buy and sell imbalances on a footprint chart. Imbalances are simply a lot more buyers than sellers, or a lot more sellers than buyers at a given price.
On the above chart 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 over 300% higher than the corresponding bid.
The ones highlighted in red are sell imbalances because they occurred on the bid and were 0ver 300% higher than the corresponding offer.
Note: 300% 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 2864.25 level. A total of 708 trades took place on the offer at 2864.25 versus 198 trades that took place on the bid at 2864.00. 708 divided by 198 equals 9.56, over a 400 percent difference. Thus a buy imbalance…
On the same bar you will notice a sell imbalance as well at the 2864.75 X 2864.50 level.
Stacked Buy and Sell Imbalances
Stacked imbalances are simply multiple buy or multiple sell imbalances in a tight price range.
Imbalances are very useful to determine support and resistance levels. If a trader or traders are aggressively buying or selling at a particular price zone, 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 2865.50 to 2867. On the proceeding candle at 11:50, sellers pushed price down into the stacked buy imbalances but failed to go any lower as buyers defended this zone resulting in a rally.
I find it very beneficial to project these price zones forward on my charts when they 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 later in this post.
Security prices move up and down in auctions that seek to discover where buying and selling can occur, thus creating a market.
In a given market, prices will move up until they reach a point that nobody is interested in buying. Likewise, prices will move lower until they reach a point where nobody is interested in selling at that level.
On the above chart you can see the zero bid print at the highs of the price bars designated with green arrows. A zero bid at the highs of a bar tells you that the market never ticked above this level, there simply wasn’t enough buyers.
You can see the same scenario on the sell side designated by the red arrows where there’s a zero print on the offer at the lows.
The zero bid tells us 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 auctions occur when there isn’t a zero at the top of the bar on the bid or bottom of a bar on the offer. (Grey Arrows)
Unfinished auctions act like magnets, drawing price back to them. It’s likely the last buyer in the auction wasn’t found in upward trend or the last seller in a downward trend when an unfinished auction occurs.
Bullish trends will end when the market reaches a price where no passive buyers are looking to buy.
Bearish trends will 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 a day trader looking to scalp profit out of smaller moves.
Unfinished auctions in themselves aren’t a trading strategy. As you will see later, I use unfinished auctions to help confirm if a high or low was put in and a potential new trend. They are very useful to validate trades and I will also use them for price targets seen later.
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 we will add to the 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 that 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 above.
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 Charts can be used to validate trades as well as manage positions once in a trade.
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 the likelihood of price reversing using a footprint chart I look for the following four events.
- 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 there’s a higher probability that a reversal is going to happen. The bulls or bears, depending on the direction of the move, did everything they could to take prices higher or lower but failed. The failure is confirmed by the volume spike.
- You want to see buy imbalances for a bullish reversal and sell imbalances for a bearish reversal as these larger 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 the four 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, there was no unfinished business as can be seen by the 0x22 bid/ask print at the top of the candle.
Finally, you can see a volume spike 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 signals large buyers entering the market who most likely will defend their position. It would have even been even a stronger confirmation if there was some stacked buy imbalances at this level.
Intraday Support and Resistance Levels
Footprint charts are amazing for determining intraday support and resistance zones.
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 a retest. 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 auction zone near $2847.00.
Once the stacked imbalance broke on the third attempt, 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 high volume nodes.
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 could target the next support or resistance zone.
Validating Entries with Footprint Charts
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 notice the stacked sell imbalance around the 2850 level. I would pass on any buy signals from my strategy until this level was broken knowing that that it’s likely 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 traders really struggle once they enter a position. They’re like a deer caught in the headlights of an oncoming car. (A strong reason you need a solid trading plan)
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 you’re taken out. 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 by 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 I’ve heard positive things about. 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. I would be surprised if ThinkOrSwim doesn’t offer something in the near future as I know there have been a lot of requests from other traders.
Trading View – Unfortunately TradingView doesn’t support footprint charts yet, but again 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 great 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 already have, or you can try using them to validate your trade signals as I do.
The best traders in the world find trading to be 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 your day trading journey!
If you would like my Sierra Chart footprint templates and much more become a JT Insider, it’s free!
So what do you think of footprint charts?