On May 6th, 2010 the markets experienced something new. A algorithmic trading system(s) crashing the market lower in what has been referred to as the flash crash because of the speed at which it happened and recovered.
It was unbelievable to watch in realtime and the folks at MarketDelta went back and overlaid squawk box audio from Traders Audio with a MarketDelta Footprint Chart to capture the event.
Warning: If you have high blood pressure do not watch! 
Newton’s first law of physics states an object at rest stays at rest and an object in motion stays in motion unless acted upon by an unbalanced force. The same is often true for the markets, in whatever time frame you view them.
Market will drift in a direction until an opposite force (buyers or sellers) counters the direction of the drift. Footprint charts capture this force on screen in real time to create a better visual of market forces.
Most users who employ the MarketDelta Footprint chart are using it to track markets intra-day and intra-day markets exhibit periods of balance, rotation, breakout, and trend. There are many patterns to watch for, but if nothing else, the Footprint gives intrabar visibility to monitor what is taking place, keeping traders on top of the markets at all times.
A common pattern that occurs is shown in the screenshot of the ES from this morning. It shows a market that was balanced and rotating within a couple of points. All of a sudden near the bottom half of the range an “unbalanced force” in the form of buyers stepped in popped price higher.
The key thing to notice is:
MarketDelta’s tagline is “See Inside the Chart”, this 30 second video shows why.
The Footprint chart is a novel tool for studying market activity.
No other charting method offers the immediate transparency of the energies at work in the marketplace.
It demystifies the market’s order flow so you can quickly identify shifts in sentiment.
Here are some examples of common rotational patterns that occur every day in the financial markets. You can use the Footprint to confirm support and resistance levels or to monitor when the natural auction activity has exhausted in one direction and begins fresh in a new direction.
These examples are of the E-Mini S&P 500 Futures contract, but they apply to any auction market, including currency futures, other indexes, stocks or any financial instrument that trades in an open market.
A popular way to use a Footprint chart is for confirmation of support or resistance levels. Fibonacci retracements offer solid areas for support or resistance that markets will often test during pullbacks.
Below I have included a regular candlestick chart with the fibonacci retracement applied to the big down move in the ES yesterday afternoon. I took the high of the bar prior to the move and the low of the bar that ended the move. This is the most common way of apply fib retracements. The retracements are automatically drawn on the chart.
This next screenshot shows how to validate a potential reversal from this known 50% retracement level. This is the same fibonacci retracement, I just changed the chart from a candle chart to a bid ask Footprint chart and also changed it to a 4 tick range periodicity.
While this level may not always hold, it does provide a known target for traders and will often yield some sort of profit taking level for those who were fortunate enough to get long near the lows. Traders partially exiting or fully exiting a long will often put pressure on the market and cause a pause in the move up.
Because Footprint charts provide intra-bar information like volume and order flow, it makes it easy to see when profit taking begins to occur.
Besides just the longs exiting positions, the 50% retracement level can also serve as a spot for aggressive shorts to establish a position for a retest of the low or for just a good scalp.
This morning has already produced some great trading opportunities for those using the Footprint chart. A primary edge the Footprint provides is the ability to “see inside the bar” as it develops. This provides early clues about what the market is trying to do.
Using the screenshot above, the key things to focus in on are volume at price, the color of the Footprints, and the trends in the volume breakdown at the bottom of the chart. The color infers the aggressiveness of buyers and sellers. Red infers selling are trying to influence price more aggressively and blue/green infers buyers are trying to influence price more aggressively. Using this information in conjunction with support and resistance levels offers greater insight to what the market participants as a whole are doing and how important the market values particular levels.
As you can see, sometimes a pullback is just a pullback and not a big reversal. The Footprint helps you spot this and position yourself accordingly to take better advantage of trading opportunities.
Click here to download the chart definition.
MarketDelta and the Footprint provide many unique ways to visualize market data. One of them is using the delta periodicity and applying it to the Footprint chart. Delta periodicity (chart interval) is unique to MarketDelta and excels at showing the volume and order flow information. Delta periodicity is most useful at identifying momentum in a market and the contraction of that momentum.
Earlier today while trading the ES futures using a bid x ask Footprint chart with a delta periodicity of 2000 a great example surfaced that was worth sharing. It shows two runs of momentum with a break in between where the market topped out (balanced).
The topping of the move, and hence reversal, shows a very specific pattern that only the delta periodicity captures. The delta periodicity is extremely sensitive to order flow since it is order flow that builds the bars. The more directional the order flow the quicker a bar is completed. In the move up and the move down (denoted by the bars near the arrows) the momentum and order flow was clearly defined using the Footprint chart. It shows relatively short, dark bars which indicate a high level of directional order flow. This translates to momentum.
The screenshot below shows a yellow box drawn around the topping action. It is at this point the order flow momentum really dried up and the trading became two sided, meaning the buyers were being equally challenged by the sellers. Instead of the buyers being in control, the trading becomes more balanced and random. At the very top you see the dark blue Footprint showing 1946 volume with absolutely no follow through, meaning not trades occurred higher. This confirms the top as some large sellers are holding strong and have resting offers placed which are absorbing demand (buying) at these high levels.
Within a few minutes the market drifted lower and then selling momentum order flow ensued pushing prices lower. The Footprint helps traders stay nimble and react quickly to ever changing market conditions.
Recently with all the hoopla coming out of Europe the Bund (German 10yr bond future) and the 10 YR Treasury Note futures have provide a nice barometer for the ES. Lately there has been a pretty nice reverse correlation where the credit instruments will trade at a new high and the stock indexes will trade at a new low.
For anyone new to the markets, don’t expect it to be tick for tick, but these types of related market correlations can be very helpful to understand and keep an eye one.
These correlated market concepts are being taught in the new MarketDelta Trading Room. It is worth joining in and learning how to apply.
Here is a screenshot of my 3 DOM’s from MarketDelta Trader this morning.
For anyone interested in learning more about the Footprint and especially how to apply it to trading, MarketeDelta recently launched live trading room.
The room is moderated by a professional trader and someone who has actually been trading for a living for over a decade and is a member of the exchange. These 2 things give the room a lot of credibility.
http://www.marketdelta.com/products/tradingroom
The room offers is very well suited for anyone looking to learn more about applying the Footprint, see and hear how a professional trader analyzes the market, and how a professional trader manages a trading position. For $99/month this is a great value.
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