Footprint charts represent a specialized visualization tool used in crypto trading and institutional options, offering a granular view of market activity by displaying executed trade volume at each price level within a given time interval. Unlike standard candlestick charts that only show open, high, low, and close prices, footprint charts segment each bar to reveal the specific quantities traded at both the bid and ask sides, providing a precise depiction of order flow dynamics and liquidity absorption.
Mechanism
The construction of footprint charts involves aggregating real-time tick data from exchange order books and executed trades. For each price level within a bar, the chart displays the volume of market orders that lifted the ask (buy volume) and the volume of market orders that hit the bid (sell volume). This detailed aggregation creates a profile of aggressive buying and selling pressure at specific price points, indicating areas of supply and demand absorption or rejection.
Methodology
Traders utilize footprint charts to analyze order flow imbalances, identify areas of significant institutional participation, and detect potential price reversals or continuation patterns. The methodology involves examining volume distribution within price bars, looking for heavy buying at the high or heavy selling at the low, which can signal absorption. This granular insight supports tactical decision-making, helping traders to refine entry and exit points and assess the true strength of price movements beyond simple price action.
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