The most common problem traders face when reading technical charts is determining the right profit- taking and stop loss points. The market ‘noise’ caused due to short-term volatility most often triggers a panic response due to which traders exit the trade prematurely. By cutting out of winning trades early, they are not able to make the most of the opportunity, and capitalize on a larger return.
Wouldn’t it be great if the technical chart could filter the market noise caused due to price fluctuations allowing you to make optimal trading decisions?
Footprint Chart is one trading chart you can use to make high probability investment decisions without getting side-tracked by market noise. In this article, you will learn what a Footprint Chart is and how traders commonly use the charts to make trading decisions.
Footprint Chart: An Overview
The Footprint Chart is an effective technical indicator tool that offers 3 times more chart visibility as compared to others. It allows you to make accurate trading decisions based on information about trade volume, price, and order flow.
The chart presents organized data relating to price and volume. Traders can use the information to uncover trends and opportunities. They can use the chart to reflect on and validate trading positions, and make a trading decision with more confidence.
The Footprint Chart filters the noise inside the price bar allowing traders to gauge whether the price trend is gaining momentum or exhausting itself. The chart clearly reflects volume information at key areas of supply and demand that allow traders to better time their trades and set appropriate entry and exit points.
Application of Footprint Charts
Traders can use different types of Footprint Charts that present different market information. The most common types of charts include the following:
Bid/Ask Footprint Chart – You can use this chart to find out whether buyers or sellers are influencing the price.
Footprint Profile Histogram – This chart shows the volume at different prices through a vertical histogram as well as a regular bar. You can use this chart to find out the prices at which the liquidity is pooling.
Volume Footprint – This type of Footprint chart segments volume by time and price. It is commonly used by traders to find effective take-profit points.
Delta Footprint – Traders use this chart to confirm price trends. The chart displays the difference between volume initiated by the buyers and the sellers at different price levels.
Traders can use Footprint charts to improve their trading decisions. The chart can be used to detect market reversals and validate positions. It provides a trading edge to traders as they can look at price and volume trends that are not revealed by other types of charts most of which are influenced by market noise. Using a Footprint Chart greatly enhances the market analysis for trades as they provide accurate details about the underlying market dynamics.