What is an ignition bar
And why does it matter?
The Ignition Bar
An ignition bar is defined as a bar or candle which moves aggressively in one direction. It has a larger range than most other bars. Opens at one end and closes at another. Often higher volume…
Alright, so that’s the definition. Why do we even care?!
Well let’s think about what we believe to be true about that bar (using a bullish candle as an example)
Demand has outstripped supply
Buyers have had to pay a higher and higher price to get the size they want. They have sacrificed price for time (get me in now at any price) hence the large bar.
How does that help us predict the next bar’s direction?
To me, that second bar gives us more clues… I treat it as an additional signal. How does the second bar respond to the ignition bar? It’s like a quick glimpse into what the other participants are really thinking.
An Immediate reversal
This tells us sellers are lying in wait… They see a short-term uptick in price as an opportunity to sell at a higher price.
Just imagine if you’re trying to sell a bunch of contracts for a customer, you’ve been working offers and hitting bids and then all of a sudden a price spike.
You’d be on it like a shot.
The ignition bar woke the bears…
A Continuation
In this situation, sellers don’t see the price premium as an opportunity to become more aggressive. They aren’t really that keen.
The demand is outstripping supply, bulls are buying and lifting offers. The thesis is that will continue…
Market Context
This is the most important clue of all. The ignition bar can’t be studied on its own. We need to look at the bigger picture.
- Has price broken a key level?
- What time of day is it?
- What’s the instrument?
- What’s the current sentiment?
- What does the daily chart look like?
(I’ll be here all day if I cover all of them, but you get the idea…)
Then we look at the response (that second candle) and then we come up with a potential trade idea.
Ignition bar – Response – Overall context
Worth looking into…