spikes

Q period = Spike: - a spike is a late price probe either to the upside or to the downside during the market's two way auction process. It happens too late in the day to be verified as having been accepted or rejected. For example, if an upside probe was rejected we would be left with a selling tail. If the spike was accepted, price would trade within the range of the spike over time. We are forced to wait for the market open of the following day for the market's verdict.

- without placing the spike within any context the simple spike rules are:

- upward spike:

• a price opening below an upward spike would be considered negative since the price probe or spike was rejected leaving a selling tail
• opening within a spike shows price acceptance and keeps the rally intact; price has found a level where two-sided trade is taking place - the price discovery dream of all business
• opening and trading above an upward spike reveals that price has not auctioned (probed) high enough to cut off the buying allowing for two-sided trade. The auction is not over
• the bottom of the spike is "support", i have to begin to think in term of spike to see how visible this reference is

- downward spike:

• a price opening and trading above a downward spike would be considered positive since the price probe or spike was rejected leaving a buying tail
• opening within a spike shows price acceptance and keeps the break intact; price has found a level where two-sided trade can take place
• opening and trading below a downward spike reveals that price has not auctioned (probed) low enough to cut off the selling allowing for two-sided trade. The auction is not over.
• the top of the spike is "resistance"

Successful trading transcends executing exact entry and exit points.

I often say there are no hard and fast rules to trading but we do have market-generated information such as spikes that can guide our market perspective and trading decisions. Leveraging these opportunities will help protect you from narrowly following price and enable you to keep a broader perspective as wide price swings occur.