Looking at "Reversal" Charts

A Footprint chart shows the volume numbers for all the trading at each price within a bar. The longer the bar lasts, the more these numbers increase, since more trades are entering during the bar. Thus, the time frame of each bar affects the information you see in the Footprint. Most of the charts we study on this site use the "Range" bar setting, which is a very popular time frame where each bar is equal in size, and a new bar only forms if the preceding bar exceeds the range bar setting for the chart. Range bars are nice for Footprints because you can see how the market reacts to different price zones as the bars move up and down. The chart treats each price equally, so the volume information inside the Footprint reveals how that price zone compares to the zone of a different range bar.

But "Reversal" charts are also a novel way to look at Footprints. This time frame, like the range bar, is not based on time. Like the range bar, a new bar forms when the price action dictates it. In this case, a Reversal bar ends and a new Reversal bar begins when the price action has reversed by a specific amount from its high or low. The Reversal bars always alternate as Up bars or Down bars. An Up bar must reverse from its High by the specified number of prices before a new Reversal bar forms. This new reversal bar is now a Down bar, and it will not end until price reverses by the same specific amount, but from the Low of the bar.

The advantage to this charting style is that you compare a bar with the bar  from two bars ago to see how the market's energy compares with its push in the same direction. For example, when comparing two Up bars, which are separated by a Down bar, you can see if the energy for those Up bars is the same, or if the current Up bar shows weakening buying energy.

Here is a chart from the ES contract this morning. It shows two Down bars that clearly revealed weakening Sell-side energy. The second Down bar had fewer contracts sold on the Bid. This gave Buyers the upper hand, and prices rose over the following several bars.

Retest at Known Reference Point

Monday's High of the Day