03/11/2024, 13:56 Volume footprint chart — TradingView
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Volume footprint chart
TradingView's New Volume Footprint Chart: Tutorial
Definition
Volume footprint is a powerful charting tool that visualizes the
distribution of trading volume across several price levels for each candle
on a specified timeframe, providing traders with additional information to
help identify areas of high liquidity or significant trading activity. Users
with Premium and higher-tier plans can view volume footprints on their
charts by selecting the "Volume footprint" option from the chart type
dropdown menu.
By default, this chart type displays the distribution of seller volume to the
left of each candle and buyer volume to the right with optional gradient
colors that signify the relative intensity of the volume on each level, and it
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places vertical lines beside levels in the distributions to highlight
significant areas of imbalance. In addition, it indicates each bar's Value
Area (VA) and Point of Control (POC), and it displays volume delta and
total volume information below each candle.
See the "Settings" section below to learn about the different footprint
display types and all other chart customization options.
Calculation
Volume data source
This chart type retrieves a symbol's volume data from several intrabar
timeframes, i.e., timeframes lower than the chart's, for its historical
calculations. The timeframe gradually increases with the exhaustion of
available historical data, starting with the lowest available timeframe. In
other words, the deeper into the chart's history, the higher the intrabar
timeframe of the volume data. The footprints for the chart's recent
candles are the most precise since they use the most granular information
in their calculations.
The order by which the chart requests intrabar timeframes for its
calculations is 1S, 1, 15, 60, then 1D. The highest intrabar timeframe
requested for historical footprints depends on the chart's timeframe.
Volume categorization
The Volume footprint chart categorizes volume as "buy" or "sell" based on
the direction of intrabar price movements. It uses the following algorithm
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to determine the category of each volume value:
If the intrabar's closing price exceeds its opening price, it assigns the
volume to the "buy" category.
If the intrabar's closing price is below its opening price, it assigns the
volume to the "sell" category.
If the closing price equals the opening price:
The volume will belong to the "buy" category if the current
intrabar's close exceeds the previous intrabar's close.
The volume will belong to the "sell" category if the current
intrabar's close is below the previous intrabar's close.
The volume will belong to the same category as the previous
intrabar if their closing prices are equal.
The chart accumulates the categorized volume across the lower
timeframes at different price levels to construct the footprint
representation.
Imbalance detection
A balanced market occurs when there's an equilibrium between supply
and demand, typically resulting in relatively stable prices. In contrast, an
imbalanced market occurs when there is a significant disparity between
supply and demand, often leading to more substantial price movements.
The Volume footprint chart detects a buy imbalance when the "buy"
volume at a price level exceeds the "sell" volume at the level below by a
specified percentage. Similarly, it detects a sell imbalance when the "sell"
volume at a level exceeds the "buy" volume at the above level by that
percentage. Users can control the percentage by which the "buy" volume
must exceed the "sell" volume, or vice versa, to detect an imbalance via
the "Imbalance" input in the chart's settings. By default, its value is 300%
(i.e., the volume of one side must be three times larger than the other).
When it detects a "buy" imbalance, the chart will display a vertical line to
the right of the corresponding price level. When a "sell" imbalance occurs,
a vertical line will appear to the left of the level:
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In the given example, a sequential comparison of volumes at different
levels is carried out. For each comparison, the assessment determines
whether the larger volume of the pair exceeds the specified imbalance
threshold, according to the formula: max(buy, sell) ≥ (imbalance
percentage / 100) * min(buy, sell).
The initial calculation is as follows: 506.37 ("buy") ≥ (300 / 100) * 166.433
("sell"). This statement holds true, indicating a buy imbalance. Subsequent
comparisons adhere to the same logic: "buy" level 3 is compared with
"sell" level 2, and "buy" level 4 with "sell" level 3.
Traders often analyze volume footprints to identify balance and imbalance
within the market. When a market is in a state of balance, a volume
footprint may show evenly distributed trading volume across various price
levels, suggesting stability and equilibrium. Conversely, while in an
imbalanced state, a volume footprint may reveal clusters of elevated
trading activity at specific levels, indicating areas of supply or demand
disparity and potential price trends.
Interpretation
Order flow
During the order execution process, market participants engage in a
search for price equilibria that will satisfy both buyers and sellers, thus
driving transactions. The directed volume of each transaction determines
its contribution to a market's buying or selling pressure. In cases where
supply surpasses demand, downward price movement may occur as the
market gravitates toward more equitable prices for buyers. Conversely,
when the demand for an asset exceeds its supply, prices may ascend until
enough participants are willing to sell.
Analyzing the concentration of buying and selling activity across price
levels with the Volume footprint chart can provide deeper insight into the
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dominance of buyers and sellers, the balance or imbalance between
supply and demand, and areas of elevated liquidity (i.e., areas with a
greater abundance of trading activity). Traders can utilize such insights to
gauge market sentiment and identify trading opportunities.
Failed auction
In Auction Market Theory, a failed auction is a pattern in which the market
fails to establish a new price for an instrument, resulting in a return to
previous prices. Traders conventionally analyze failed auctions with tools
such as Market Profile, but one can also identify instances of such
patterns using footprints.
A failed auction typically occurs when one side of the market, either
buyers or sellers, fails to attract enough participation to sustain trading
activity at a price level, potentially leading to a rapid price reversal as
market participants reassess and adjust their positions. Failed auctions
often coincide with heightened volatility, and they can indicate potential
key turning points in the market.
Traders and analysts often pay close attention to failed auctions, as they
can provide helpful insights into market dynamics and trading
opportunities. Identifying failed auction states can help traders identify
support and resistance levels and anticipate potential reversal patterns.
The example below demonstrates a case where prices moved successively
higher with each bar while buyer volume gradually decreased. On the
fourth bar in the image, the imbalance between sellers and buyers
reached a point where buyers could not push the price further upward,
and the price rebounded downward. One can interpret this area of
imbalance as a possible resistance level. If prices break the level in the
future, it might suggest a growing trend:
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Delta divergence
Delta divergence in volume footprints refers to a discrepancy or
disagreement between price movement and volume delta.
Positive delta divergence occurs when prices successively move downward
while the volume delta rises, possibly even turning positive. Conversely,
negative delta divergence occurs when prices successively rise while the
volume delta falls or even becomes negative. These divergence patterns
often suggest that, despite the current price action, the underlying buying
or selling pressure is diminishing, potentially signaling the weakening or
reversal of the current trend.
The example below shows four falling bars, two of which have a positive
delta. In other words, those bars exhibit positive delta divergence:
Traders often analyze delta divergence in footprint charts to help them
anticipate potential reversals or changes in market direction. However, it's
essential to consider other factors and utilize additional tools to help
validate divergences and make informed trading decisions.
Excess trades at extreme price levels
In Auction Market Theory, the market price ascends until the exhaustion
of demand and descends until the exhaustion of supply. This exhaustive
movement is a complete auction. On a footprint chart, this situation
appears as zero or minimal purchases at the low price level or minimal
sales at the high price level.
In some cases, a situation referred to as an incomplete auction may arise,
where the difference between buying and selling volume at the high or
low levels differs slightly relative to the differences on previous levels.
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This condition may indicate that price exploration is incomplete, and there
may still be interested market participants above the current highs or
below the current lows. In essence, this pattern might indicate that the
market price may continue its directional movement past the current
range until the end of the auction.
Settings
Customization options for the Volume footprint chart are available from
the chart settings, which users can access from the "gear" icon in the
toolbar above the chart, the icon in the chart's bottom-right corner, or
from the "More" menu accessed by clicking the three dots next to the
symbol name.
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EN Get started
Candles
The settings in the "Candles" section are identical to those for a regular
candlestick chart. From this section, users can configure the appearance of
the candlesticks.
Volume Footprint
Row size
Controls how the chart will determine the size of each footprint row
(level). There are two options to choose from:
The "Auto" option specifies that the chart will calculate the size
automatically based on the data's latest normalized Average True
Range (ATR) value. It uses the formula: 0.2 * NormalizedATR /
MinimumTick. The chart recalculates the size when selecting the
"Volume footprint" chart type or changing the symbol or timeframe.
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When using this option, the input below specifies the length of the
ATR calculation.
The "Manual" option specifies that the chart will utilize the number
of ticks specified in the "Ticks per row" input below.
ATR length
Specifies the smoothing length for the Average True Range used to
calculate the number of ticks per footprint row when the "Row size" input
uses the "Auto" option.
Ticks per row
Specifies the number of ticks per footprint row when the "Row size" input
uses the "Manual" option.
Type
Defines the display mode of the footprints on the chart. Three options are
available:
The "Buy and Sell" option (default) displays seller volume across
levels to the left of each candle and buyer volume to the right.
The "Delta" option will display one column to the right of each bar
that shows the volume delta (i.e., the difference between buyer and
seller volume) for each level.
The "Total" option will display one column to the right of each bar
that shows the total volume at each price level.
Apply gradient to background
If enabled, the color of the background of each footprint level will differ
based on its volume compared to the volume at other levels. The chart
uses the following algorithm to calculate the gradient colors:
1. Determine the maximum and minimum volume.
2. Calculate the volume range, i.e., the difference between the
maximum and minimum volume value.
3. Subtract the minimum volume from the current level's volume.
4. Calculate the ratio of the value obtained in step 3 by the volume
range obtained in step 2.
5. Use the ratio from step 4 to select a color from the available options:
1. Select the first color if the ratio is less than 0.25.
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2. Select the second color if the ratio is greater than or equal to
0.25 and less than 0.5.
3. Select the third color if the ratio is greater than or equal to 0.5
and less than 0.75.
4. Select the fourth color if the ratio is greater than or equal to
0.75.
6. Repeat steps 3 through 6 for each price level.
When the footprint type is "Buy and sell" or "Delta", the chart calculates
the gradients for the buy and sell sides separately.
Background
These inputs specify the background colors used by the footprint levels.
Users can choose separate colors for buy and sell sides when the footprint
type is "Buy and sell" or "Delta". If the "Apply gradient to background"
option is enabled, a four-color gradient will be available for each color
option. The chart will select colors for each level using the algorithm
described in the previous section.
Value Area
Enables Value Area (VA) lines and specifies the VA percentage. The Value
Area High (VAH) line will appear above all levels included in the Value
Area, and the Value Area Low (VAL) line will appear below all levels in the
Value Area. The Volume footprint chart's Value Area algorithm is similar to
the algorithm used by our Volume Profile indicators.
Labels
POC
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Determines whether the chart will display each footprint's Point of
Control (POC).
Show summary info
Determines whether each footprint will display information about the
bar's total volume, the total buy and sell volume, and the overall volume
delta.
Imbalance
Specifies the percentage by which buyer volume must exceed seller
volume, or vice versa, to detect a significant imbalance. See the
"Imbalance detection" section above to learn how the Volume footprint
chart detects imbalances.
Highlighting
Determines whether the chart will highlight imbalanced price levels and
specifies the colors. When imbalance highlights are enabled, the chart
places colored vertical lines to the sides of significantly imbalanced levels.
The chart displays buy imbalance markers to the right of the levels and sell
imbalance markers to the left.
Stacked levels
Controls whether to display stacked imbalances and the number of
required consecutive levels with an imbalance on the same side to detect
a stacked imbalance. When enabled, the chart projects stacked imbalances
until subsequent prices intersect the levels.
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