Understanding The Differences Between a DOM and Footprint Chart

Summary

This educational trading video delves into the nuances between the Depth of Market (DOM) and the Footprint chart, essential tools for traders. The DOM displays passive limit orders, requiring aggressive traders for market movement, while the Footprint chart illustrates executed contracts, revealing aggressive trading activity. The presenter clarifies these concepts, emphasizing the importance of liquidity and order flow in market dynamics, offering insights to enhance trading strategies.

Takeaways

• 📈 The video discusses the difference between the Depth of Market (DOM) and the Footprint chart in the context of trading.
• 🔍 The DOM shows passive traders' resting limit orders to buy and sell, whereas the Footprint chart displays executed lots or contracts that went through.
• 👀 In a DOM, orders to buy are on the left and orders to sell are on the right, reflecting the passive nature of the traders waiting for their orders to be filled.
• 🛑 The market requires aggressive traders to move; without them, the market would be static as passive orders alone cannot initiate price movement.
• 💡 Aggressive sellers are needed to push the market down by filling orders resting below, and aggressive buyers are required to lift the market up by paying more to get filled.
• 🌐 The video emphasizes the importance of liquidity in trading, explaining how it affects the execution of market orders and the potential for slippage in illiquid markets.
• 📊 The presenter uses the ES S&P 500 futures market as an example to illustrate the concepts, noting the differences in order volume during various market sessions.
• 📈 The Footprint chart provides an 'X-ray' view of the candlesticks, showing the exact number of contracts traded at each tick level within a candle.
• 🔄 The DOM is dynamic, with orders constantly changing as traders react to market movements by adding, modifying, or canceling orders.
• 📉 Imbalances in the Footprint chart are significant and can be measured diagonally, indicating a strong momentum in either buying or selling at specific price levels.
• 📚 The video encourages viewers to explore more in-depth strategies using order flow concepts and tools, and to check out the presenter's courses for further understanding.

Q & A

What is the main topic of the video?

The main topic of the video is explaining the difference between the numbers observed in a Depth of Market (Dom) and a Footprint chart in the context of trading.

What is a Depth of Market (Dom)?

A Depth of Market (Dom) is a chart that displays the passive limit orders to buy and sell at various price levels, showing the resting orders in the market.

What is a Footprint chart?

A Footprint chart is a tool that shows the executed lots or contracts at each tick level, providing an x-ray view of the price action within each candlestick.

How does the market move according to the video?

The market moves due to the interaction between passive traders with resting orders and aggressive traders who execute market orders, filling the limit orders.

What is the significance of aggressive traders in the market?

Aggressive traders are essential for market movement as they are the ones who lift offers or hit bids, causing the market price to change by executing orders against the passive limit orders.

What does the video mention about the liquidity of a market?

The video mentions that liquidity is important in trading, as it affects the ease with which large orders can be filled without causing significant price slippage.

What is the purpose of the extra columns in the Dom shown in the video?

The extra columns in the Dom show recent bid and ask traded volumes, which provide insights into the last trades that went through at these levels, helping to identify large trades and potential momentum shifts.

What is the concept of 'point of control' in the context of a Footprint chart?

The 'point of control' on a Footprint chart represents the price level within a candlestick where the most traded volume occurred, indicating the area of highest activity during that time frame.

What is Delta in the context of a Footprint chart?

Delta in the context of a Footprint chart is the difference between the executed buys and sells at a specific price level, indicating the balance of aggressive buying or selling pressure.

What are 'imbalances' in a Footprint chart?

Imbalances in a Footprint chart refer to situations where the executed contracts to buy or sell are significantly larger than the counterpart, often measured in terms of being at least three times bigger, indicating a strong directional bias.

How does the video suggest using the Dom and Footprint chart together?

The video suggests using the Dom and Footprint chart together to understand both the resting passive orders and the executed aggressive orders, providing a comprehensive view of market order flow and potential price movements.