The idea behind this indicator came from one of our previous indicator which is now replaced by this indicator, the idea was using a bar range to volume ratio to measure its strength in comparison with previous bars but there was an issue, small Doji bars were causing the ratio to increase significantly and that made the indicator data representation almost useless.
We came up with a solution to use the bar body size as an extra filter, that’s how the “Explosive Bars” started.
If a bar (high – low) range to its volume ratio is higher than x previous bars range to volume ratio and its body range is larger than x previous bars body range average then this bar is considered as an explosive bar, why?
Suppose a bullish bar with a large body in comparison with previous bars bodies and lower tick volume, what does it mean? it means the price moved very fast in one direction without much consolidation and formed that large body and we might see the continuation of this move in future bars.
Once you attached the indicator on your chart you will notice how this explosive bars cause explosions in price and how these bars spot the start of new swings.
The one thing you must don’t forget while using this indicator is the location of an explosive bar, is it after other similar types (bullish/bearish) bars? if its then we are already in the move and it might be too late to jump in.
Using this indicator just by itself for getting entry signals might not help at all, combine it with other analysis methods and you will end up with a robust trading system.
- Easy to use and setup
- Strong market theory base
- Doesn’t get any extra space on your chart, just marks the bar bodies
- Combines the price and volume data for making inferences
- Works on all time frames and markets