What Does a Spike in Price Action Show You?

A spike in price action could be showing you a number of different things.

Technically, the word spike implies a sharp increase in the magnitude or concentration of something. In charting price action it means a sudden and extreme increase in buyers or sellers creating a short-lived high or low for that period of time.

Spike In Price Action Example

When you see a spike in price action, it could mean a number of different things, such as:

  • Rejection at that price and ultimate reversal.
  • A support/resistance barrier that’s hard to get through.
  • A level that seems extreme at the moment but you get the clue that the market is seriously considering it for the future.
  • The market is uncertain at the level of the spike, and looking for confirmation or rejection.

To say the least, a spike is showing you a level where the market gets touchy!

Forex Charting Tip:

Keep track of the price level a spike is pointing to, because it’s always going to be a target for future reference. It may be later that day or that month or even many months later. The market is never hitting a price point randomly, and you won’t be surprised when you see price get back to that level again, maybe with a winning trade on your books!

4 Hour Chart of NZD/USD Chart

Here is a picture to demonstrate my point. This is a 4Hour chart of NZD/USD. Every arrow shown in black was a spike that marked a target for future price price to return to, (green dot). The last one (red), is still a target for future reference.

1 Day AUD/USD Chart

My last chart is a 1Day AUD/USD. This is an extreme example with AUD/USD throwing out a 260+ pip spike at the beginning of January to 0.6721. It might be the level the market has been aiming for all year.

Happy charting. May all your spikes make you smarter and happier!

Jennifer has been trading Forex since 2001. She developed a strategy to anticipate market movements based on repeatable patterns seen in every market.

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