Updated on March 19, 2023
The term spike in technical analysis refers to the sudden change in the price of a security like a stock, commodity, or currency whether in the upward or downward direction. There can be numerous numbers of spikes like a sudden influx of buying or selling pressure, some unexpected news or events, or the release of financial or economic data.
What do spikes signify?
Traders can see spikes as signs of increased volatility that can have a significant impact on the price of a security. Spikes provide opportunities to gain short-term profits for traders and investors. The risk associated with the spike in price movements should also be accounted for in getting short-term gains.
Can traders solely rely on spikes to make successful trades?
Spikes in prices are temporary in nature and they can often retrace shortly after a spike. Therefore, it is not prudent to rely solely on the spikes to determine successful trading positions. Traders and investors should consider using other technical indicators, and fundamental analysis along with chart patterns, to confirm a trend change before making investment decisions.