Momentum Ignition

“Momentum ignition” [is] a kamikaze attempt to incite abrupt market moves.

Source: Liam Vaughan. Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History. Doubleday, 2020. [B084]

[As described in their paper] “Toxic Equity Trading Order Flow on Wall Street: The Real Force Behind the Explosion in Volume and Volatility", [...] Arnuk and Saluzzi detected signs of momentum ignition, in which an algorithm initiates a series of trades in an attempt to trick other machines into believing that a particular stock is headed higher or lower. [...] The high-frequency traders engage [a momentum ignition] strategy to juice a market already moving up or down, creating either a major decline or a big upward spike in prices. [...] This strategy might be most effective in less actively traded stocks.

Source: Jim McTague. Crapshoot Investing: How Tech-savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino. United Kingdom, FT Press, 2011. [B181]

[This] strategy, called by the SEC “momentum ignition strategy” consists in submitting aggressive orders to spark a price movement in the hope that other algorithms will wrongly jump on the bandwagon and amplify the movement.

Source: Charles-Albert Lehalle and Sophie Laruelle. Market microstructure in practice. 2013. [B073]

For instance, the SEC has pointed to “momentum ignition strategies” that consist in submitting market buy (sell) orders to spark an upward (downward) price movement in the hope that other traders will wrongly jump in the bandwagon and amplify the movement. The high-frequency trader igniting the price movement can then quickly unwind his position at a profit by either selling at artificially inflated prices or buying at discounted prices. Such momentum ignition strategies erode the predictive power of past order flow to predict future order flow, discussed above in our analysis of directional strategies. HFTs are better able to filter this out than slow traders, however. Either, because they are themselves generating the noise in the signal, or because their fast access to the data enables them to react swiftly to the unwinding of others’ momentum ignition strategies.

Source: Bruno Biais and Thierry Foucault. "HFT and market quality." Bankers, Markets & Investors 128 (2014): 5-19. [1047]