Friday, October 26, 2012

Footprint indicator released

I finished the documentation and release package. I put it on the products page. Or contact me for a trial version for evaluation.

Information can be found here, and also on elsewhere on the blog.

Thursday, October 25, 2012

Footprint indicator ready for Beta release

I've been using and developing the Footprint indicator for a few weeks now. You can search this blog for various posts about it. Finally, it is ready ... almost. I still have to write documentation for it.

Also, there will certainly be updates, but in general it is more or less ready.

Things to do:
  • Documentation and installation instructions
  • New "models" for buy/sell classification

The indicator has several "models" for determining the buy/sell classification. This is a hard topic. The traditional way used by other tools such as Market Delta, etc. uses trades at Bid vs trades at Ask. However, for this you actually need the time and sales data, and with FXCM feed we only get quotes. Even with time and sales, there are still some issues because you have to match up a trade with a quote and due to time differences in reporting this is not always easy - and impossible with HFT algos.

Another way to estimate buy/sell is simply from the quote or tick data. That's what I'm doing. I have developed and evaluated several models. This model testing has been the major part of the development over last few weeks (i.e. why it took so long).

Model 1: MidTick
If the current mid price (i.e. half way between Ask and Bid) is greater than the last mid price, the trade is classified as a buy.

If the current mid price is less than the last mid price, the trade is classified as a sell.

Model 2: AvgMidTick
Similar to MidTick, but the current mid price is compared to an average of mid price over the last N ticks.

Model 3: AskBidTick
If the current Ask is greater than the last Ask, and the current Bid is greater than the last Bid, then the trade is classified as a buy.

If the current Ask is less than the last Ask, and the current Bid is less than the last Bid, then the trade is classified as a sell.

Model 4: AvgAskBidTick
Similar to AskBidTick, but the current Ask and Bid are compared to an average of Ask and Bid, over the last N bars.

I have a number of ideas for new models, including using standard deviations, or RSI overbought/oversold as the buy/sell classifier.

Buy/sell classification is not a perfect science, and in any event just because there was buying at a certain price now, doesn't mean there will be next bar. However, in general the information and results seem reasonable, especially the total (tick) volume at price.

PS: I've sent trial versions of this indicator to those on my list. If I've forgotten anyone, then please send me a reminder.

Wednesday, October 24, 2012

FOMC minutes and rate decision, no real effect

I was stalking potential demand or supply levels here, but in the end the rate decision and FOMC minutes leaves the market more or less unchanged.

Here's the Footprint chart before, during and after the news. You can see the chop, probing levels above and below, but no real winner.

Reversal candle on the EUR/USD Footprint

I spotted a few "reversal" candles on the Footprint indicator yesterday, I saw another today, and decided to trade it. The context of this trade, is that the price had fallen sharply the previous day, and was now in consolidation phase.

The key features of these reversal candles are:

  • small body
  • longish tail
  • High volume node / POC (Point of Control) in the middle of the tail
  • The tail penetrates a demand/supply level or other significant level
If price closes higher than the POC, then logically for this to happen all that high volume must have been buying. And the opposite for a top reversal candle.

The use of such "pin bars" is not new to me. However, the use of Footprint to look inside this candle, and then to make the differentiation between new buying (which indicates demand) and lack of buying/selling is important. For example, a pin bar with very low volume, this could be a test, or pause in the market.

Anyway, as it turned out I was spot on with this one - only I didn't trust it. I got nervous about further losses, and so initially scaled out 1/2 my initial position to reduce my exposure, and then later moved to break-even, and was eventually stopped out. Had I had the patience to see this through, this would have been a nice trade back to the previous day's Value Area.

Another Footprint chart of GBP/USD

After yesterday's fall, this morning there was some chop and a rally (to previous day's POC anyway).

The Footprint shows the action at the important levels. Firstly, the selling as the price rallied to the previous POC, but when price retraced back to the demand zone it went up again, and this time pierced the previous POC. Interesting to see was how volume fell to almost nothing just before the POC, but then increased as it finally passed it. That level was the logical place for stops for anyone who was short, and so they all got hit as the price rallied - which creates further increase increase in price.

Tuesday, October 23, 2012

Risk-off move, looking at the Footprint

I still don't know what caused today's risk-off move during the European session, but it took me by surprise. I tried to play the previous range, and was taken out. I tried to catch the bottom, and was taken out. Looking at the Footprint, might give some hints. Let's look at EUR/USD.

This is a 15min chart, and much of the down move already occurred. This chart is the part where the bottom is trying to form. There's a huge conflict of contrarian traders trying to buy at cheap prices, and trend traders (or late breakout traders), trying to follow it down. This means big bars, long tails and high volumes. You can see the buying pressure starting to come in, but then sellers also try to sell any rally or pause. Eventually, there is a big red bar, with a longish tail, with a high volume POC in the middle of the tail. I have seen this before, and have started to recognise it as a sign of good buying. It isn't over yet though, and there is a 2nd candle down to the same low (actually it is a pip or 2 lower), again the POC is mid-way down the wick. From this, finally there seems to be something of a rally.

Here's the GBP/USD. It is similar. I actually tried to enter on this one (twice in fact) after the big long wick candle. Whilst outwardly this candle looked like a classic "pin bar" setup, the tail was very thin, and the POC was high up in the body. This seems to have been a weak move down (possibly a test), and there was little new buying. A couple of bars later and price drops again, and I'm stopped out of the trade (and also decide to stop for the day, since my daily limit is blown). However, a couple of bars after this, the real signal comes... in the form of another long-tail candle, but this time, there is high volume POC mid-way down the tail, and thinner to the bottom. That was the reversal candle!

It's not going to be up-up-up though, such a big move usually has some consolidation, and can even go lower if the market is badly rattled. I don't even know what started this move today!

Candle Profile to see "Inside the Bar"

The Candle Profile indicator uses lower timeframe data to construct a profile (like Market Profile) for each candle on the chart. For example, the following diagram of the GBP/USD uses 1H candles, but the Candle Profile constructs its profile from 1m bars.

The indicator can display various features, such as the Point Of Control, Value Area, High Value Nodes and Low Value Nodes.

The information helps to give a better understanding of what went on "inside the bar". For example, the bar that is annotated in the above chart shows the POC a long way down the tail of a pin-bar type candle. For there to be that much activity on the tail yet the price closed much higher, it is fair to guess that this was buying as the price hit a demand zone. Price rallied from this level, and might also do again in the future.

Friday, October 19, 2012

Market Profile Labels

I added labels to the Market Profile graphic. The label at the top is the profile's name. This depends on the profile type, for example the daily profile label is the day, the weekly profile label is the week number, etc.

The label at the bottom shows some statistics, currently the number of TPOs above the POC, the number of TPOs below the POC and the Rotation Factor.

Thursday, October 18, 2012


Today started off, as what some people would call choppy. But one man's chop is another man's range... and I love to trade ranges. I took 2 trades today, both up and down, trading between supply and demand zones on the GBP/USD. I also realised from the Footprint that the upwards move was attracting a lot of selling, so I traded short on the next rally, and it eventually broke down nicely. Unfortunately, it took longer than I thought, and I got nervous and closed out 1/2 my position early (to reduce my risk), but the rest went on to hit my target.

I used the Market Profile's Value Area to trade the range initially, and then used Footprint indicator to help me stay in the trade.

Rotation Factor

I came across something called "Rotation factor" recently. Here's a short video about how to calculate it manually.

Here's a definition from the internet.

In terms of how this is used in trading... I found very little. Intuitively, small values (that's small positive or small negative values) will occur when there is a lot of rotation in the market, i.e. its going up and down over the same area. In trending markets, the number is bigger (positive or negative, the sign just indicates the direction). Balanced auctions (low absolute RF) are more likely to range... until they breakout at least. Maybe a big change in RF indicates a change in market condition.

Wednesday, October 17, 2012

Coloured TPO for Market Profile

Just working on a new feature for the Market Profile indicator. This feature colours the TPO letters as the profile progresses. Currently it uses rainbow colours, starting with violet through to red, and it changes the hue each bar. Options to use shaded/faded colours are also possible. Also, it should be possible to do something like change the colour for each session of a daily profile.

The idea is to make it easier to spot the development of the Market Profile, such as rotations, etc.

Here's the coloured TPO profile.

Here's the unconsolidated TPO profile, which I've also coloured the same way, so you can see how it relates to the above screenshot.

I've since finished the development of this feature, and added a mode to colour according to the mode. So, for monthly profiles, each week is a different colour; for weekly profiles, each day is a different colour; for daily profiles each session is a different colour; for anything else it cycles through the rainbow according to the current bar count.

Here's the Daily profile, with each session (when defined) shown as a different colour.

Here's the Weekly profile, with each day (Sunday to Friday) as a different colour.

Tuesday, October 16, 2012

GBP/USD scalp using Footprint

Some nice action on cable (GBP/USD) today. Some rumours this running around this morning, caused some risk-on sentiment, only to have more negative news later, but still a general buoyancy in the market. This volatility makes for great trading, if you can pick the levels. Using Market profile, and Candle Profile indicators to pick a good support level, and when price entered this, I went long. The news / rumours did the rest, and I scaled out as I saw the move stalling.

30min GBP/USD
During this trade, the price fell back to my entry level, and this always makes one very nervous - was I wrong? should I get out now at break even? Using the Footprint gave me confidence to continue with the trade, since the price did not breach the High Volume Node of buying volume.

15min GBP/USD

Friday, October 12, 2012

Variable time Market Profiles

Having listened to some webinars by Peter Steidlmayer, I decided to implement his "variable time profile" idea. Actually, variable profiles were on my "TO-DO" list anyway, but I hadn't worked out a good way to do it. The system he describes in the video was simply to start a new profile when the price broke the range of the last 9 bars, of a profile which is at least 12 bars old (although these parameters are changeable of course).

It is very simple algorithm (much simpler than I was thinking of), but seems to work remarkably well.

Here it is on 1 hour chart. It does a reasonable job of splitting the price action into distinct profiles, such as 'b', 'P', 'D' and 'B' profiles.

Steidlmayer Volume Strips

Video I found from CME Group, by Peter Steidlmayer (the "father" of Market Profile).

And here's a discussion thread on this, from BigMikesTrading forum.

Here's another interesting one from CME Group and Peter. I also found the slides for this webinar.

Thursday, October 11, 2012

Wednesday, October 10, 2012

EUR/USD Footprint trades

Made some nice scalps today using the Footprint. I'm still learning this technique, and have lots to learn, but performance so far is encouraging.

Knowing the volume in the candle, lets me see where price will stall (hopefully), allowing me to make tight entries and exits.

Unfortunately, the last trade didn't work out. I saw that my entry bar developed a lot more volume on the lower tail that I would like. In light of this, I moved my stop very tight to reduce the risk on this. Looking at how the price action developed, there was a very thin "pin bar" reaching up to the previous highs; this was price rejection, and towards the end of the US session, price plummeted! Alas, I did not catch this one.

Tuesday, October 9, 2012

S&P500 drops to support level

The S&P500 tagged the overnight POC and high just before the US open. The price was rejected here, and there seemed no need to try again when the opening bell went, so price continued downwards. Price hovering just above some support levels. Tomorrow's open will be key.

The chart also uses the Candle Profile, which showed the selling at the POC that led to this down-move.

Post script: Later trading, and overnight session, did take this instrument lower, but the POC at 1435 seems to be holding for now.

Monday, October 8, 2012

Candle Profile Indicator

I finished testing the Candle Profile Indicator, all seems well with it. The indicator is available to purchase on my Products page, and full documentation will be available in a couple of days.

The indicator works well as a companion to Market Profile, but it could also augment any other technical charting technique.

The Candle Profile indicator is not quite as powerful as the Footprint indicator, which I plan to complete next week. However, it's main benefit is its convenience and ease of use.

Friday, October 5, 2012

NFP - good data, but not that good

NFP today. Better than expected jobless claims data sends S&P500 higher pre-market, but market opens with a big doji, and by 10:30 price is reversing. That's another 10:30 reversal!

The news was not that good, and not good enough for people to hold over the weekend. S&P500 is high, and so there is some profit taking last thing on Friday.

Here's the GBP/USD. Double top at NPOC (Naked Point Of Control). I took the short at this level but exited at the obvious support level. In the event, price went much lower than I'd expected.

Could I have done better using the Footprint indicator? I didn't use it at the time, since it takes a lot of screen time, and I was too distracted with other things. However, with the analysis of hind sight, I can see why I exited too early. I should have stayed in the trade or re-entered.

The first chart shows the NFP and my entry and exit.

This 2nd chart shows how price revisited an area that was previously a HVN, but later became an LVN. Price was rejected at this level, and fell for another 70 pips!

Keppler Volume Tracking Indicator Webinar

I received a link to this webinar by Dr Keppler on his Keppler Volume Tracking Indicator. On the face of it, there are similarities with the Footprint and Candle Profile. The KVT has additional analytical algorithms that I don't use. He shows some examples of how he uses this tool and volume to analyse the market with respect to the auction process.

Thursday, October 4, 2012

Multiple Market Profiles

This chart has 3 different levels of Market Profile:
  1. Intra-day Market Profile
  2. Composite Profile of the whole chart
  3. Candle Profile (i.e. micro-profile of the 30min candles, only the POC is shown)

The Candle Profile indicator is basically working, and currently undergoing final testing. Due to graphical limitations of MarketScope only the Point Of Control (POC) and Value Area can be shown. There are options to display these as dots, lines, shaded area, etc. In the above screenshot only the POC is shown. POC of the micro-profiles can be traded in a similar way to normal Market Profiles, but obviously under much shorter timeframe and higher volatility. They make good targets and places to hide stops behind.

Wednesday, October 3, 2012

Candle Profiles

I've had something like this at the back of my mind for a while. Someone recently commented on the blog about "ProSticks", and this got me to thinking about it again.

The basic idea is to use say a 1H chart (actually any timeframe) and then to generate a Market Profile for each 1H candle using a lower timeframe (e.g. 1m or 5m).

That's just what I've done here. The full graphic of the Market Profile can not be drawn, so only the Point Of Control and Value Area is shown.

The same charting analysis techniques as Market Profile can be used, i.e. looking to enter short when price retraces back to the top of the Value Area, etc. There is some overlap with the "Footprint" indicator that I am also developing.

The indicator is still under development, but it is actually quite simple and re-uses much of the Market Profile code. The main tweaks still to do are the display options, etc. The indicator works on all timeframes, and the lower timeframe can even use tick data.

Here's the indicator with the candle body set to the Value Area.

Just married!

There hasn't been any new post from me for the last few days. I got married on the weekend, and I'm still catching up with things.

I am currently working on "Candle Profile" (like "ProSticks"). After that I'll get back to the "Footprint" indicator.

Hope everyone's having a great week. Remember its NFP on Friday!