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How to Determine a Trend Using Footprint

How to Identify Trends and Spot Reversals with Footprint Charts

One of the most critical tasks for a trader is identifying trends. However, this is not always straightforward. Where one trader sees a downtrend, another might interpret it as an uptrend. While theoretical knowledge provides a general understanding of trends, it often fails to answer the key question: how and when can you accurately determine the direction of a trend and its end?

Basic Principles of Identifying Trends

  1. Downtrend: Each new high is lower than the previous one.
  2. Uptrend: Each new low is higher than the previous one.

While these rules give a general idea, they are often insufficient for making precise trading decisions. Moreover, technical analysis doesn’t clearly indicate when a trend should be considered complete.

Fortunately, there is a more precise approach. To understand trends and recognize reversals in time, you can use footprint charts — a tool that provides unique, detailed market insights.

Footprint Charts: A Powerful Analytical Tool

Footprint charts allow you to look inside each candlestick and understand how trading volumes are distributed between buyers and sellers.

How to Start Using Footprint Charts

  1. Install the Platform:
    Download a platform like ATAS, which supports footprint charting.

  2. Set Up Your Chart:

    • Register and log in to the platform.
    • Select a charting tool (Chart).
    • Experiment with different timeframes to analyze trading volumes within each candlestick.

  3. Add Volume and Delta Indicators:

    • Navigate to the "Indicators" tab.
    • Find the Volume and Delta indicators and add them to your chart.

What Do the Indicators Show?

  • Volume: Displays the total number of trades completed during a specific period. The color of the bars corresponds to the candlesticks:

    • Green: The candlestick closed higher than it opened (bullish).
    • Red: The candlestick closed lower than it opened (bearish).
    • Gray: The open and close prices are the same.

  • Delta: Shows the difference between buying and selling volumes:

    • Red: Sellers dominate.
    • Green: Buyers dominate.

These indicators help you see who is in control of the market at any given moment and determine the direction of the trend.

Using Footprint Charts to Identify Trends

Footprint charts require adherence to two key rules:

  1. Wait for Market Reaction.
  2. Be Precise in Entering Trades.

Example:

Let’s say the indicators show that sellers dominate the market. It may seem logical to join them, but this could be a mistake.

Don’t rush — wait for buyers to react. Someone might take advantage of low prices to step in and start buying.

Entry Strategy:

  • Place a sell order below the last bullish candlestick.
  • If sellers truly dominate, the order will be triggered, and you’ll catch the trend early.

How to Recognize When a Trend Is Ending

  1. Falling Prices with Increasing Volumes:
    When bearish candlesticks show higher volumes than bullish ones, it confirms a downtrend.

  2. A Candlestick with Unusually High Volume:
    If a bullish candlestick suddenly displays a larger volume than its preceding bearish candlestick, this may signal an impending reversal.

  3. Wait for Confirmation:

    • Watch for the appearance of two or more bearish candlesticks with low volumes.
    • This indicates that the pressure from sellers is waning and the trend is nearing its end.

How to Spot a Reversal

  1. Rising Volumes on Bullish Candlesticks:
    This signals that large buyers are entering the market. However, this alone is not enough to confirm a reversal.

  2. Wait for Sellers’ Reaction:
    Give large sellers an opportunity to respond. If they fail to maintain their positions, the trend will likely reverse.

  3. Reversal Confirmation:
    A pair of bearish candlesticks with low volumes indicates that sellers’ dominance is fading. This is the moment when a reversal is confirmed.

Benefits of Using Footprint Charts

  • Precision: Gain access to data unavailable through standard analysis.
  • Transparency: See exactly who is controlling the market at any given moment.
  • Reactivity: Make decisions based on real-time data rather than speculation.

Conclusion

Identifying trends and reversals is the foundation of successful trading. Using footprint charts allows you to uncover hidden market dynamics and make more informed decisions.

 

Remember, successful trading is not about rushing — it’s about timing and patience. Analyze the market, observe participants’ reactions, and enter trades strategically. Footprint charts are your ultimate tool for achieving these goals.