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Volume footprint chart

Definition

Volume footprint is a powerful charting tool that visualizes the distribution of trading volume across several price levels for each candle of a specified timeframe, providing traders with additional information to help identify areas of high liquidity or significant trading activity.

Calculation

Volume data source

Volume footprints are available to users with Premium and higher tier plans, and use data from several lower timeframes of the current symbol for historical calculations. The indicator requests the 1S data first, and once this data is exhausted, it requests the next timeframe in sequence. As a result, the deeper into history, the higher the requested timeframe and the lower the accuracy of volume distribution.

The order in which lower timeframes are requested is: 1S, 1, 15, 60, 1D.

Volume side determination

The chart determines whether the trade is a buy volume or a sell volume by analyzing the direction of the price movement:

  • if the close of the current bar is greater than its open, then this is a buy volume
  • if the close of the current bar is less than its open, then this is a sell volume
  • if the close of the current bar is equal to its open, then:
    • if the close of the previous bar is less than the close of the current one, this is a buy volume
    • if the close of the previous bar is greater than the close of the current one, this is a sell volume
    • if the close of the previous bar is equal to the close of the current one, then the direction of the volume will be considered the same as on the previous bar

The footprint chart analyzes each bar from the lower timeframe based on this logic and adds up the volume to build the footprint for the current bar on the chart.

Imbalance determination

A balanced market is one where there is equilibrium between supply and demand, resulting in relatively stable prices. In contrast, an imbalanced market occurs when there is a significant disparity between supply and demand, leading to pronounced price movements.

The excess of the buy volume over the sell volume is a buy imbalance and is determined when the buy volume at the current price level exceeds the sell volume at a price level one lower than the current one by a certain percentage. For sell volume, the opposite is true: the excess of sell volume at the current price level over the buy volume at a price level one higher than the current one by a certain percentage signals a sell imbalance.

The percentage value by which one volume type must exceed another to be considered imbalanced is set by the user in the chart settings. The most commonly used value is 300%, and our Footprints chart has this as the default. In this case, one volume type must be three times larger than the other for imbalance to be determined.

When a buy imbalance is found, a vertical line will be drawn to the right of the price level; when a sell imbalance is found, a vertical line will be drawn to the left of the price level.

Traders often analyze volume footprints to identify instances of balance and disbalance within the market. In a balanced market, volume footprints may exhibit evenly distributed trading volume across various price levels, indicating stability and equilibrium. Conversely, in a disbalanced market, volume footprints may reveal clusters of high trading volume at specific price levels, suggesting areas of supply or demand imbalance and potential price trends.

Interpretation

Order flow

During the order execution process, market participants engage in the search for a price equilibrium that satisfies both buyers and sellers, resulting in a transaction.The volume of transactions, depending on the initiator - buyer or seller - determines whether it contributes to buying or selling pressure. In cases where supply surpasses demand, downward price movement occurs as the market seeks a more equitable position for buyers. Conversely, if demand exceeds supply, prices ascend until there are buyers willing to bid at this price.

Volume footprint shows how much trading activity happens at different prices, and whether it's mostly buyers or sellers driving the action. It helps traders understand market behavior, like where to enter trades, which way prices are likely to move, and where supply and demand are balanced or imbalanced. It's a tool to gauge market sentiment and find trading opportunities.

Failed auction

Failed auction is defined as an unsuccessful attempt to set a new price for an instrument and a return to previous price levels. This concept is often used with market profile, but one can also find such a state with footprints.

A failed auction typically occurs when one side of the market, either buyers or sellers, fails to attract enough participation to sustain the price level. This can result in a rapid reversal in price as market participants reassess their positions and adjust their strategies accordingly. Failed auctions are often associated with high volatility and can serve as important turning points in the market.

Traders and analysts pay close attention to failed auctions as they can provide valuable insights into market dynamics and potential trading opportunities. Identifying failed auctions can help traders anticipate market reversals, validate support and resistance levels, and refine their trading strategies to capitalize on changing market conditions.

The example shows how the price consistently moved up and with each new bar the demand at the highest price level decreased. On the next bar, the imbalance of buyers was unable to move the price even higher and the price rebounded downward. This level can be regarded as a resistance level; this level will probably be tested again and its breakdown may mean a growing trend.


Delta divergence

Delta divergence in footprint charts refers to a discrepancy or disagreement between the price movement and the total delta value.

Positive Delta Divergence: This occurs when the price is moving downward, but the delta values are becoming less negative or even turning positive. It suggests that despite the downward price movement, buying pressure is increasing or selling pressure is diminishing, potentially signaling a reversal or a weakening of the downtrend.

Negative Delta Divergence: Conversely, negative delta divergence occurs when prices are making upward price movement, but the delta values are becoming less positive or turning negative. This suggests that, despite the upward price movement, selling pressure is increasing or buying pressure is diminishing, potentially signaling a reversal or a weakening of the uptrend.

Traders often use delta divergence in footprint charts as a signal to anticipate potential reversals or changes in market direction. However, it's essential to consider other factors and use additional technical analysis tools to confirm the divergence and make informed trading decisions.

Excess trades at extreme price levels

In auction market theory, the price moves up until demand dries up and down until supply dries up. This is called a completed auction. Typically, on a footprint chart this looks like zero or minimal sales at the maximum price level and zero or minimal purchases at the minimum price level.

But sometimes, a situation called an incomplete auction may arise - during an incomplete auction, the volume of purchases and sales at the maximum or minimum price level differs slightly. This condition may indicate that the trend movement has not yet completed and there are still interested market participants above or below the current highs or lows, therefore there is a possibility that the price will continue to move in the current direction of the trend until the end of the auction.

Settings

To open the "Volume footprint" settings, click on the gear in the toolbar above the chart, to the right of the layout name.

Candles

The Candles section is identical to the one a regular candlestick chart has. Here you can configure the display and color of candles on the chart.

Volume Footprint

Row size

Defines the mode for calculating the size of price level rows; there are two modes available to choose from: Auto and Manual:

  • Auto - the size of price levels is selected automatically based on the last current average true range value for the length specified in the "ATR length" input. The ATR value is calculated when the footprint chart type is selected or when the symbol is changed. The number of ticks per price level is calculated using the formula: last normalized ATR value / 5 / tick.
  • Manual - the size of price levels is specified by the user as the number of ticks in the "Tick per row" input.

ATR length

Sets the number of bars of the current timeframe used to calculate the average true range (ATR). The resulting ATR value is used to determine the optimal size of price levels when the "Row size" input is set to "Auto".

Ticks per row

Sets the number of price ticks per price level. This input appears when you select the "Manual" value in the "Row size" input.

Type

Defines the display mode of footprints on the chart; three display modes are available:

  • Buy and Sell - footprints will be displayed in two columns: to the left and to the right of the bar. The left column displays the total sell volume at the current price level, and the right column displays the total buy volume at the current price level.
  • Delta - one column will be displayed to the right of the bar. At each price level, the difference between the buy and sell volume will be shown.
  • Total - one column will be displayed to the right of the bar. Each price level will show the sum of buy and sell volume.

Apply gradient to background

If enabled, the background of the footprints will differ depending on the volume of the current price level.

Color determination algorithm:

  1. Determine the maximum and minimum volume
  2. Calculate the volume range - the minimum volume is subtracted from the maximum volume
  3. Find the position of the current level in the volume range - the minimum volume is subtracted from the current volume
  4. Determine the percentage of the current level relative to the range - divide the value from point 3.1 by the range value from point 2
  5. Use the value obtained in point 4 to determine the color from the proposed ones:
    1. If the value is less than 0.25, then the first color is used
    2. If the value is equal to or greater than 0.25 and less than 0.5, then use the second color
    3. If the value is equal to or greater than 0.5 and less than 0.75, then use the third color
    4. Otherwise use the fourth color
  6. Repeat steps 3 to 6 for each price level

In the Buy and Sell mode, the background will be calculated separately for the buy and for the sell side; only the volume of the same type is used to determine the color.

Background

Sets the background color for footprints. For the "Buy and sell" and "Delta" modes, you can configure separate colors to indicate buys and sells; in the "Total" mode, there will be a single background color for the total volume. If the "Apply gradient to background" option is enabled, then a gradient of four colors will become available for each color option, the color selection algorithm is described in the "Apply gradient to background" section above.

Value Area

Enables the display of Value Area lines and specifies the value area percentage from the entire range of price levels. The VAH line is displayed above all levels included in the value area, the VAL line is displayed below all levels included in the value area. The algorithm for calculating the value area is similar to that described in this article about the Volume Profile indicators.

Labels

POC

Enables the display of point of control.

Show summary info

Displays information about the total volume, the total buy and the total sell volume, and the delta between the total buy and total sell volume.

Imbalance

Imbalance

Specifies the percentage by which the volume of one type must exceed the volume of another type in order to consider the ratio of these volumes to be imbalanced. You can learn more about imbalance in the "Imbalance determination" section above.

Highlighting

Sets the color of the imbalance levels. You can configure separate colors to the buy and sell imbalance. When turned on, imbalanced levels are marked with a vertical line of the corresponding color. The buy imbalance is marked by a vertical line to the right of the price level, and the sell imbalance is marked to the left of the price level.

Stacked levels

Sets the minimum number of sequential levels with an imbalance on one side that should be identified as a stacked imbalance. When enabled, such levels are extended on the chart until the nearest intersection with the price.