What is a Price Spike?
Quick Answer: A spike is a sudden, sharp price move often triggered by news or order imbalances, leaving long wicks that can trap traders.
Understanding Price Spikes
A spike is a sudden, sharp price move often triggered by news, order imbalances, or thin liquidity. Spikes create long wicks and can trap traders on the wrong side.
Interpreting Spikes
Upward spikes into resistance or liquidity voids may signal stop hunts. Downward spikes into demand can mark capitulation. Watch order flow and follow-through to judge significance.
Fade or Follow?
Fade spikes when they occur against the dominant trend and quickly reverse; ride them when they align with trend and break key levels with volume.
Risk Management
Always use stops when trading around high-impact events. Slippage can be severe, so reduce size or avoid trading during known news catalysts if you lack fast execution.
Avoid Revenge Trading
Spikes can trigger emotional responses. After unexpected moves, pause and reassess rather than chasing price impulsively.
Related Terms
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