Signal Bars: Other Types
Remember,a signal bar is a setup bar that led to an entry. However, not all trades are worth taking, and just because a stop was triggered and turned the prior bar into a signal bar, that does not make the trade worth taking (for example, many signals in a tight trading range, which is described later, are best avoided). All signal bars are meaningless in the absence of price action that indicates that the breakout of the bar will likely go far enough for at least a profitable scalp.
STRONG TREND BAR
A very important signal bar is a strong trend bar, especially during the spike phase of a trend. For example, if the market just broke above a bottom at an area of major support on a major news item that will affect the market for days, traders will look for any reason to get long. One common approach is to wait for a bar to close and if the bar is a strong bull trend bar, traders will buy at the market as soon as the bar closes. Many will try to quickly place a limit order at the price of the close, and if their order is not filled within a few seconds, they will change it to a market order. Other traders will enter on a stop at one tick above the high of the bar. This urgency results in a series of bull trend bars and an increasingly larger bull spike.
Traders are always looking for a change of direction, and they rely on reversal patterns as the earliest sign that a change might be taking place. The risk is to the opposite end ...