someone explain price spikes to me

Discussion in 'Trading' started by IronFist, Aug 15, 2008.

  1. I know sometimes they're caused by news but I assume that news-related ones only happen at :00, :15, :30, or :45 minutes.

    So when price is just going along being normal and then at some weird time like 14:02 it jumps up in a giant bar, what causes that?

    Especially if you're using tick or volume bars and like 5 of them appear in 2 seconds when before the normal rate was one bar every minute or so.

    I'm looking for a good answer, not "increased demand" or "lots of buyers."
     
  2. The answer is a huge spike in volume, plain and simple. Either a large buyer/group of buyers or larger seller/group of sellers. The only things that moves prices are supply, demand, and specialists/MM.
     
  3. I'm looking at my chart and there are sometimes big volume spikes accompanying normal-sized bars and sometimes big volume spikes accompanying large bars.

    Much to the dismay of everyone on ET I have never seen a correlation between volume and price action. But that's an entirely different thread altogether :D Basically sometimes there is huge volume at the beginning, or middle, or end of trends, and sometimes not at all. One day I'll start a thread called "teach me volume" with a ton of screenshots.
     
  4. A lot of traders can get "fixated" on one particular price all at the same time and then end up wanting to all do the same thing at the same time on the same side of the market.
     
  5. what are you trading?

     
  6. It's not just volume alone. It's active buying or selling. On an upside spike, you will get many orders hitting the offer and trading through, also many market orders, while at the same time, sellers stepping away from the offer.
     
  7. Is there anyway to predict when this will happen (not the new-related ones) so that I can just take the rest of the day off BEFORE the huge spike?

    There's no escaping it:

    - On time charts it's just a huge spike out of nowhere

    - On volume or tick charts, you get like 5 new bars in 2 seconds which isn't enough time for you to do anything until it's too late

    - On range bar charts it's the same thing, except usually the bars come even faster than on volume or tick charts. You blink and there's 10 new bars up.
     
  8. Well, it depends on the instrument you are trading. These spikes could be due to program trading. There are ways to predict when buy and sell programs will come into the market, but I will not share that info. It looks to me like you're either trading stocks that are too thin, or at times of day when volume is too low. In a thick stock, you won't get as many spikes, and likewise at the high volume times of day, price action is a little more smooth.

    One key to being a successful trader is knowing when to avoid trading during thin volume days. And to use size according to the whipsaws within that instrument.

    It sounds like you should close the trading platform and get yourself a little more education.
     
  9. Think volume flow and patterns within the context of the day as opposed to fixed size values. If you have bid/ask studies, a lot of times in a sideways market there will be a cap on the delta almost to the absolute. SOMETIMES this will precede a turn.

    As usual no certainties, just tendencies.
     
  10. ES and YM.
     
    #10     Aug 15, 2008