We have pointed out the value of studying a footprint chart’s net “delta” or order flow accumulated for an entire day, but here is a chart that shows the delta accumulated over many days. The divergence today is quite striking, and preceded a very large selloff this morning:
Click for larger picture
MarketDelta users can click here for a chart definition.
We normally try to post only Footprint and delta information to this blog, hence the URL footprintchart.com, but couldn’t pass up the usefulness of this how-to article for anyone using Market Profile charts.
http://support.marketdelta.com/entries/114800
The article shows how to port out reference lines from a Market Profile chart and into a Footprint or other chart. I find it helpful to have the same lines I reference on the Market Profile chart show up on my other charts.
As for how I use this information, using the Market Profile for the bigger picture and then timing my trades off the Footprint data is a great way to apply the two tools.
While horizontal S&R lines are often used to study price, they really can be used on anything, and sometimes it offers compelling views of the market to look at support on significant indicators like cumulative delta information.
Here you can see that today’s intraday decline was known well in advance with the net order flow dipped for the first time in several hours. This was a major leading indicator that preceded a nice short trade in the ES.
Unlike the filtered institutional volume in the previous example, here is what today has looked like for all traders in the world trading ES. Note the big shift in cumulative order flow just before the market broke down.
As you can see, order flow analysis is the one and only true story about what is happening in the market. Everything else is merely conjecture, but order flow represents actual behavior and sentiment among the real people placing the trades. Very important stuff.
We noted earlier today that the institutions were selling at this new high of the day. What happened next? Because of footprint charting, we were able to see how the big guys were playing the market, and that they were doing so to the downside.
Since our blog post about an hour ago, the market has dropped 10 points at least, and is continuing. This is the value of footprint charting.
Another great example, just like the one we noted last week:
Click for a bigger view.
For MarketDelta users, here is a chart definition.
MarketDelta Trader is a new product by MarketDelta that combines a Footprint chart with the DOM. I have found the Footprints provide some good insight to what the algorithms and high frequency traders are doing. At times in looks like all they are doing is playing games with each other just to suck us all in to erratic price activity, but at least the Footprint sheds light on what is going on gives me an edge.
I like this example because it shows normal trading with a jump up with all much of the trading occurring at the ask. Then, it reached a point where probably another algo said “enough” and hit the bid. This occurred at price I highlighted. Price was then auctioned right back down to where it started. If you had looked away for a minute you would have missed the whole thing.
It is moves like this that tend to shake scalpers out of their trades because they price jumps so quickly in one direction, but this really helps because you have confirmation of what is going on each step of the way.
Yesterday we noted that there was a huge order flow imbalance (or “divergence”) entering the market late in the day, where the big lot traders with trade sizes of 100 contracts or more (typically institutions) were aggressively selling the ES as it inched higher and higher.
This is why order flow analysis is so key. The market has fallen nearly 30 points in half a day since that time.
Easy answer, using the “Cumulative Delta” feature of MarketDelta software, which we’ve talked about many times on this blog. However, in this case, we compare the cumulative order flow for the day to the cumulative order flow of just the big players, and it is quite interesting!
Click for bigger image!
As you can see, the big players are really selling this rally pretty hard. The last time they did this, we did get a decent intraday dip.
That’s not to say they are actually right of course; after all, as we all know, even institutions can be wrong!
While not specifically related to Footprint charting, but definitely related to auction analysis, of which the Footprint is a part, there was an interesting blog post yesterday by MarketDelta that predicted, almost to the tick, where the market traveled today. Click here to read it, as it is an interesting yet simple example of the power of auction market theory.
Essentially, they showed all the volume activity since the market broke down in August, and drew a volume distribution around it, showcasing the value area and the POC. The POC is the area of most-traded volume in a profile, and for the last two months in the ES this number is at or around 1157, which pegged today’s closing high perfectly, and all in one day.
It is interesting that, on a day when the market surged 2% and many are surprised by this, that simple auction analysis showed how likely this was to happen, and very soon. I recommend their blog for this reason. And of course, they provide the best Footprint chart software you will ever find.
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