How To Interpret Stop Order Activity

How To Interpret Stop Order Activity

One of the most obvious patterns that Footprint Charts can be used for is spotting when stops are triggered. What you witness is all the trading activity occurring on one side of the market, either the bid side (in the case of sell stops) or ask side (in the case of buy stops). One trading strategy is to look for this stop pattern and fade it, with the understanding that it is capitulation and the move has exhausted.

Below is a bid ask footprint chart of gold futures shows a double top that is tested a 3rd time and triggers stops about 10 ticks above the high. It is evident because all the trading occurs on one side. This is typical of a stop being triggered.

Here is the same gold chart but shown using the delta Footprint.

In some cases stop activity is the start of a move, not the end. So you must be prudent when fading stops activity.

ADVANCED

A more complex pattern to watch for is: (1) stops getting triggered and then (2) a bouncing / chop pattern on the chart. These bars will print onto the chart extremely fast and represent lack of liquidity as the market digests the triggered stops and liquidity fills back into the market. For #2, this only happens on a point and figure, renko, range, or Heiken Ashi source type.

In observing this pattern many times, it is the combination of stops being triggered and the lack of liquidity that often signal capitulation and produce and opposite response (reversal).

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