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Spike Low or Bullish Spike

spike low on a chart

A spike or tail is an abnormally large price bar that sticks out of the normal price trend. When a spike bar shoots downward far below the price trend but closes near the high of the price bar it is called a spike low or bullish spike.

Spike High or Bearish Spike

spike high on a chart

When a spike bar shoots upward far above the price trend but closes near the low of the price bar it is called a spike high or bearish spike. Rockefeller (2011) states that spikes can be called swing bars, "A swing bar is any bar that is the final and lowest low in a series of lower lows or the final and highest high in a series of higher highs." (p. 121). For those familiar with Japanese candlestick charting techniques, a spike low is analagous to a hammer or dragonfly doji and the spike high is analogous to a shooting star or gravestone doji.

Bulkowski (2005) claims that spikes are short-term turning points and shouldn't be interpreted as major trend changes. Rockefeller (2011) suggests using the low of a spike low or the high of a spike high as the area to place a stop loss (p. 121).

Spike Low Chart Example

historical stock chart of a spike low bottom of downtrend

The chart above of the Mid-Cap 400 ETF (MDY) shows a spike low after a downtrend. Notice the day prior to the spike low, there was a long price bar that extended below the normal price range; however, this is not a spike low because the close was toward the bottom of the price bar. The next day was a true bullish spike because the close was at the high of the price bar.

Spike High Chart Example

stock chart of a spike high at the top of an uptrend

The chart above of the Energy SPDR ETF (XLE) shows a spike high or bearish spike after an uptrend. Even though prices moved higher for four days after the spike high, no stop loss would have been triggered.

Works Referenced

  1. Nison, S. (2003) The Candlestick Course. Hoboken: John Wiley & Sons.
  2. Nison, S. (1994) Beyond Candlesticks: New Japanese Charting Techniques Revealed. New York: John Wiley & Sons.
  3. Nison, S. (1991) Japanese Candlestick Charting Techniques. New York: New York Institute of Finance.
  4. Rhoads, R. (2008) Candlestick Charting For Dummies. Hoboken: Wiley Publishing.
  5. ThinkorSwim. (2011). ThinkorSwim Resource Center: Candlestick Patterns Library.
  6. The Pattern Site. (2005). Bulkowski's Spikes or Tails . Retrieved June 1, 2012, from http://thepatternsite.com/spikes.html