how to trade spikes -hammers and hanging man signals
A spike high is a period whose high is sharply above both the high of the previous period as well as the high of the following period. Conversely, a spike low is a day whose low price is sharply below both the low of the following period as well as the low of the previous period. Spikes can often signal reversals of the most recent trends and they can often look similar to hammers and hanging man.
The greater the spike is – meaning the larger the difference between the high/low on the spike and the high/low on the periods before and after the spike – the greater its significance. Also, a spike high’s significance also increases when the market is trending upwards, while a spike low’s significance increases when the market is trending downwards.
The charts above illustrate how spike highs and lows can be identified, and what they can signal for traders who choose to incorporate them into their trading arsenal.