Any financial product that offers volume information is a good candidate for Footprint charting. While spot Forex does not include true volume numbers, many traders prefer the currency futures which offer volume data like any other traded commodity.

In the case of the Euro, you can see how useful this was. Even if you choose to trade spot Forex, charting the corresponding currency future can offer clues that you would not otherwise get from charting the spot rate alone.

Here we see a couple of excellent clues in this mornings Euro activity that strongly suggested a sell-off. A spot Forex chart would not have shown any of this information.

Click for a larger picture.

One advantage to a Footprint chart is the ability to see “trapped” traders. These are the traders who enter a position and nearly immediately end up in a losing trade. The Footprint lets you see the number and strength of the trading activity that is now trapped.

If a large number of traders Buy, for example, but the market does not move up, these traders are all in losing positions. You can see this easily on the Footprint. If the market fails to return to their entry price, these trapped buyers will fuel the decline as they get stopped out of their trades and sell for a loss.

Why does a lot of buying energy not push the market higher? Simply, there are enough limit orders at these prices to outnumber the market orders shown on the Footprint chart. The limit orders are the supply, while the market orders are the demand. If the supply is greater than the demand, prices will not push through these limit orders, and the buyers are now trapped.

Here is a chart of the Euro currency futures to demonstrate this:

Click for larger view.