Trading Gold with Footprint Chart Patterns

As traders who observe footprint chart patterns, we are continuously collecting nuances that help us identify trade setups and the risks we take in these setups. In most cases, it is the confluence of clues that make up one good trade. Recently we have discussed how Axia Elite Trader executed big size using multiple tools such as footprint chart and technical pattern.  In this article, we will be looking at a similar set of tools, but from a slightly different perspective. We will be using these market tools.

Image describing market tools used in this article such as footprint, volume, chart pattern
Market tools used for breakout trade in Gold

Specifically, we will look at:

  • Bull flag – what clues to look for, when a flag is formed and how we should wait for appropriate timing to access the trade
  • Footprint – what to look at the footprint chart in order to define meaningful risk-reward trade

We will use a breakout trade in Gold as demonstrated in the video down below in our example.

Bull Flag Technical Pattern

Starting with the bull flag technical pattern, we will first look at the basic principle that defines a bull flag. Let’s use this picture to describe the very basic parts forming a bull flag.

What is bull flag composed of
Components of a bull flag

In other words, we have an initiative, in this case by buyers. Once the liquidity was found, we have a two-way trade followed by a change in dynamics and initiative taken again by the buyers. One of the ways, how you can read the nuances of the flag is to use the market profile as we have discussed in our previous post. You can also take different approach just by simply analyzing how each candle was formed and how long it took buyers and sellers to move prices.

Let’s have a look at our gold example:

Bull flag in Gold
Bull flag in Gold

As you can see buyers moved prices much more quickly then sellers did. This can be one of the clues, that this flag has the potential to break and continue higher. Let’s define our clue:

Market clue how flag is being formed

Does that mean, that we should buy immediately because buyers are stronger than sellers in this particular instance? No, but it gives us a clue to build our narrative. One of the risks you are running with flags is “Harry the hindsight”. It is a very easy post flag break to say, where you “could” buy and make money. The problem is that, when a flag is forming, you need to wait for that exact point to define your risk and not getting in too early (pre-empting) with very hardly defined risk. In order for us to define a risk well, let’s use footprint, to look inside the breakout out of this flag to understand, how we could access this with well-defined risk.

Using Footprint Chart Patterns To Access The Trade

What we are specifically looking at with the breakout out of this flag is a way how to access the trade. We can notice how volume and range changed at 7:25PM relative to recent volume with 2000 contracts traded lifting the offers (marked as A on the image down below). In comparison to the previous volume, this is substantially higher volume, a signal that market dynamics are changing. This was followed by a retrace (marked B) where absorption happen and buyers reloaded. It was now clear, that buyers have shifted from being passive, to being more aggressive and we can enter the trade with much more clearly defined risk below the breakout rotation (A).

Footprint view of the access candle
Footprint view of the access candle

After we have found our access with well-defined risk, market lifted offers in the next 5-minute rotation and finally confirmed our trade idea with breaking out higher on nearly 16 000 contracts traded.

Footprint view of the breakout candle
Footprint view of the breakout candle

A combination of our understanding of how this flag was formed and a footprint chart to define the risk with much better precision can give us a much more clear idea on where and how to access the trade. Rather than entering blindly and in many cases too early, we were able to wait for the opportunity with much more favorable risk-reward.

In case you want to become an expert on how to read the footprint charts like those described above, consider checking our Footprint Edge Course.

Also, if you liked this article, you might check these as well:

Thanks for reading and until next time, trade well.

JK

What do you think?

Written by Jaroslav Kohout

Trading Floor AXIA Futures

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