Spike Low or Bullish Spike
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
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
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
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.
- Kirkpatrick II, C.D., & Dahlquist, J.R. (2010). Technical Analysis: The Complete Resource for Financial Market Technicians (2nd ed.). Upper Saddle River, NJ: FT Press.
- Rockefeller, B. (2011). Technical Analysis For Dummies (2nd ed.). Hoboken: John Wiley & Sons.
- The Pattern Site. (2008). Bulkowski's Measure Rule. Retrieved June 1, 2012, from http://thepatternsite.com/measure.html
- The Pattern Site. (2005). Bulkowski's Spikes or Tails . Retrieved June 1, 2012, from http://thepatternsite.com/spikes.html