What causes a 'Spike' in the market?

[dpaterso]

Another question for the experts:

What causes a 'Spike' in the market?

I have been looking over the charts for most of the pairs available to me to trade and I have noticed that it seems to happen on only a few of them BUT more often than one would like.

I was surprised to find one on my trading system on the USD/CHF Daily Chart (on 31 Jan 2007). Of course when there is a spike this totally messes up the experimentation that I have been doing with the Parabolic SAR indicator. As a matter of fact it messes around with most of the indicators for a while after the spike.

I have been led to believe that it is the dealer doing this but I'm not sure about this. I noticed the other day that during some or the other news break that it was NOT my beloved GCI but the whole market. I know this because I am thinking about opening another account at MB Trading who are supposedly a non-dealing desk broker and I had their demo open at the time and they had the same 'Spike' on their system as GCI had at that time so I know that it was not just GCI. This I suppose was not a 'Spike' in the true sense of the word just 'Stop Hunting'.

Anyway - what causes a real 'Spike' - like I have on my chart as desribed above? The 'Spike' to which I refer made the price drop from 1.2524 to 1.1278 - nice if you had a short and could close the position - but highly unlikely to happen!!! Not to mention the fact that if you did not have ENOUGH MARGIN it could very well have resulted in a margin call!!!

Regards,

Dale.

By the way - could someone PLEASE have a look at my other questions. I'm starting to feel invisible on this board. Please don't make me go to Forextown - they seem to be very intolerant of noobs over there!!!

[lagunacat]

Originally Posted by dpaterso

Another question for the experts:

What causes a 'Spike' in the market?

I am no expert but I have always thought it was the 'big boys' (banks and other pros trading $$millions) making their moves.

[shadow]

Well it depends what time exactly it is at. Obviously around news time you can see spikes and that is just volume. Now when it's around other times, you can't really classify it as something you can know about. It could be volume vs fundamentals. there is a huge amount of buying, but the price off of what it should be, so when the buying stops, there is no support for it to stay up and the price starts moving, fear kicks in and it's down again. I don't know for all I care it could be because it's a full moon outside. Those types of movements are really unpredictable, they don't affect me much since I'm long term, but if I tend to watch them I usually foolishly liquidate. The fact is you don't really have the exact reason for why they happen, they just do. So all you can do is incorporate them into your method. Of course I can't tell you how to do that, you'll have to learn yourself based on what method you use. Anyways stay at it and best of luck to get that cash back eh.

[dpaterso]

Thanks shadow for the well wishes.

Just so that I am clear here though - I am not talking about those 'Spikes' that you see around news times or something like that - I'm talking about a 'SPIKE' - like it is so out of proportion to the rest of the graph - I mean - it goes (for example) right from the top of the graph to the graphs bottom limit. Could that be one single trade that would cause that - I mean - could that be a single HUGE trade at a certain price that causes that to happen or is it an error - be it a data error - or a mistake made by the broker? It could be of great importance to know because - like I said before - if you trade without Stops like I do (I sit and watch this thing 25 hours a day) it could very well result in a margin call no matter how big your margin is. If it is a dealing desk mistake then I'm sure that your position would be reinstated (I have read of this happening before where someone transposed some digits while entering a price at the dealer) but if this can happen as a result of a valid trade then that is also something that I need to be aware of.

Regards,

Dale.

[akeakamai]

Oh dear, I'm not sure if you guys looked at the numbers in his "spike". It equates to a 1246 pip spike! And i'm guessing this is over a short period of time. Now, Dale, I can't be sure that trades are not occuring at these spiked levels, or if it's just your broker, but I can say that my broker does not show these spikes on any of my charts for any of the pairs it offers. That would be insane and really really mess up everyone's TA if they did...

[akeakamai]

And yes, I understand how you would be worried about your stop losses when these spikes are happening. I'd highly recommend talking to your broker about it, but personally I'd switch, because those spikes would really annoy me, even if they didn't affect my stop losses!

[shadow]

Originally Posted by dpaterso

Thanks shadow for the well wishes.

Just so that I am clear here though - I am not talking about those 'Spikes' that you see around news times or something like that - I'm talking about a 'SPIKE' - like it is so out of proportion to the rest of the graph - I mean - it goes (for example) right from the top of the graph to the graphs bottom limit. Could that be one single trade that would cause that - I mean - could that be a single HUGE trade at a certain price that causes that to happen or is it an error - be it a data error - or a mistake made by the broker? It could be of great importance to know because - like I said before - if you trade without Stops like I do (I sit and watch this thing 25 hours a day) it could very well result in a margin call no matter how big your margin is. If it is a dealing desk mistake then I'm sure that your position would be reinstated (I have read of this happening before where someone transposed some digits while entering a price at the dealer) but if this can happen as a result of a valid trade then that is also something that I need to be aware of.

Regards,

Dale.

There really isn't a specific answer for that. Now if it does occur on your platform and not any other, then it is definately a glitch and you should be reinstated. But I mean it could a number of things but if it is on every platform (I suggest maybe downloading a couple more) then it is the price reacting in it's own way. The thing about them is that you really can't predict the things but when They occur but you could always jump on them I guess. I know what your talking about though for someone who watches it every second it can be frustrating for something like that to happen. It could even be just large volume. If your trying to pinpoint what it is good luck, you'll never know all you can do is prepare when this occurs. Sorry if it seems I haven't helped, but again best eh!

[shadow]

Originally Posted by akeakamai

Oh dear, I'm not sure if you guys looked at the numbers in his "spike". It equates to a 1246 pip spike! And i'm guessing this is over a short period of time. Now, Dale, I can't be sure that trades are not occuring at these spiked levels, or if it's just your broker, but I can say that my broker does not show these spikes on any of my charts for any of the pairs it offers. That would be insane and really really mess up everyone's TA if they did...

I think he meant differnt numbers I looked at the chart and it didn't make that big of a spike it never went lower than 1.2385. If it did go down that low then I would say it is a broker's glitch. The pair is quite volitle though and from the looks of the past it seems to do that often.

[dpaterso]

Thanks again for all the input.

No - I did not mean different numbers - those are the numbers from my chart - I checked again just to make sure.

Look - don't get me wrong - this only seems to have happened once in six months for the USD/CHF pair BUT if I look at the CHF/JPY chart there are three of these things within two months - and I'm not talking about 'Spikes' - I am talking about serious 'SPIKES' - and - as you say - this messes up all the stats for the period.

It is of great concern for me if these can possibly be valid trades for the simple reason that my favourites are things like Gold, USD/ZAR, etc. etc. with huge spreads but HUGE profit (and, yes, loss - there - I said it) potential. A spike like that in Gold or USD/ZAR would wipe Warren Buffet out!!!

Regards,

Dale.

[shadow]

Yeah then I guess it was a glitch in the broker considering that it hasn't been to that level since 2005! Maybe it is just the broker, these spikes you speak of seem crazy. I would download another platform for sure. And if you lost money on this you should definately tell the broker.