Spike

What is a 'Spike'

A spike is a comparatively large upward or downward movement of a price in a short period of time. Spike also refers to the trade confirmation slip which shows all the pertinent data for a trade, such as the stock symbol, price, type and trading account information.

A good example of a negative spike in the financial markets is the infamous stock market crash of Oct. 19, 1987, when the Dow Jones Industrial Average DJIA plunged 22% in a single day.

BREAKING DOWN 'Spike'

There are less drastic examples of spikes, which are seen when investors react to unexpected news or events, such as better-than-expected earnings results. Use of the word "spike" originates from the antiquated practice of placing paper trade order slips on a metal spike upon completion.

The concept of a spike in a stock’s price is used in technical stock analysis. Technical analysis is the study of trends in stock price changes and in trading volume, which is the number of shares traded in a day or month. Portfolio managers study these historical trends to predict the behavior of stock prices in the future. Fundamental analysis, on the other hand, evaluates a stock’s future price based on company sales and earnings. Money managers combine technical analysis with fundamental analysis to make decisions about stock prices.

A technical analyst may consider the price trading range for a particular stock. Assume that, over the past 12 months, a stock has traded between $30 and $45 per share. In addition to a price range, a technical analyst looks at the long-term trend in a stock’s price. In this case, assume that the stock’s price has trended up from a price in the low 30s to a current price near $45 per share.

Factoring in a Price Spike

In this scenario, if the price of the stock quickly moves below $30 or above $45, that may be a buy or sell indicator for the technical analyst. Assume that the stock has a low spike down to a trading price of $27. If the stock’s trading pattern returns to the normal trading range, the spike may be an anomaly. On the other hand, if prices start to trend downward after the low spike, the spike may be an indication that news about the company has changed investor opinions about the stock. A technical analyst may use this trend as a reason to sell the stock.

How a Trade Is Confirmed

The Securities and Exchange Commission (SEC) monitors how investment information is disclosed to investors. One SEC disclosure requirement is to provide a trade confirmation whenever a security is traded. The term "spike" also refers to a trade confirmation, which is the written record of a security transaction.

The trade confirmation includes a description of the stock or bond, along with the exchange where the transaction took place. The broker confirms the number of units traded, which may be shares of stock or the par amount of bonds bought or sold, along with the security's symbol.

RELATED TERMS
  1. Technical Analysis of Stocks and ...

    The academic study of historical chart patterns and trends of ...
  2. Opening Range

    The highest and lowest prices of a security during the first ...
  3. Equity Market

    The market in which shares are issued and traded, either through ...
  4. Stock Analysis

    Stock analysis is a term that refers to the evaluation of a particular ...
  5. Basing

    A period in which a stock or other traded security is showing ...
  6. Current Price

    The "real time" price of a security trading on an exchange, as ...
Related Articles
  1. Active Trading

    Blending Technical And Fundamental Analysis

    Find out how you can combine the best of both strategies to better understand the markets.
  2. Trading Systems & Software

    Use Price Action Trading Strategy for Results

    Bored by the fixed rules of technical and fundamental analysis? Price action trading allows you to customize your own trading strategy.
  3. Chart Advisor

    What's In Store For These Stocks With Unusually High Volume?

    For these four stocks with recent usually high volume, the overall technical picture will be used to help gauge in which direction the next tradable moves will be.
  4. Forex Education

    Introduction to Types of Trading: Technical Traders

    Learn about the different traders and explore in detail the broader approach that looks to the past to predict the future.
  5. Investing Basics

    Why You Should Understand The Stock Market

    Even if you don't invest a cent in stocks, you should still understand how the stock market works. Find out why.
  6. Economics

    3 Ways To Tell If Your Stock Has Bottomed

    No one can call stock bottoms with absolute certainty, but there are some common trends that appear when stocks are about to hit bottom.
  7. Investing

    Advising FAs: How To Explaining Stocks to a Client

    Without a doubt, common stocks are one of the greatest tools ever invented for building wealth.
  8. Fundamental Analysis

    Fundamentals And Technicals: Together At Last

    It's a big mistake for a fundamental investor to ignore technical analysis. Find out how to become chart smart.
  9. Trading Strategies

    Fundamental and Technical Analysis for Pairs Trading

    Pairs traders employ either fundamental or technical analysis, or a combination of the two, to make decisions regarding which instruments to pair, and when to get in and out of trades. Many pairs ...
  10. Forex Education

    Mastering Short-Term Trading

    Making money in a pressure-cooker environment is all about minimizing risk on hot picks.
RELATED FAQS
  1. How do traders identify confirmation of prices on a chart?

    Learn about some of the crucial tools that traders can use to confirm their price movements on a chart before entering or ... Read Answer >>
  2. Do stocks that trade with a large daily volume generally have less volatility?

    Stock volatility refers to a drastic decrease or increase in value experienced by a given stock within a given period. There ... Read Answer >>
  3. What types of data are necessary to make a technical analysis?

    Understand what technical analysis is, the basic theory behind employing it and what data inputs are needed to conduct it. Read Answer >>
  4. What is the difference between the bond market and the stock market?

    The bond market is where investors go to trade (buy and sell) debt securities, prominently bonds. The stock market is a place ... Read Answer >>
  5. What technical indicators can I use to find undervalued stock?

    Investors seeking new ideas may want to look to technical analysis to see whether the market has undervalued a particular ... Read Answer >>
  6. Is it better to use fundamental analysis, technical analysis or quantitative analysis ...

    Understand the difference between fundamental, technical and quantitative analysis, and how each measurement helps investors ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center