News spike retrace: what bar data hides

[Shadow Trader]

On a one-minute chart, a news candle can look like a long wick: price shoots up 30 pips, then falls back, and the candle closes near the open. The wick suggests a rejection.

At the tick level, it may look very different. The spike might have consisted of a few widely spaced ticks, from quotes with huge spreads, not actual trading. The apparent high was a point where the ask was 15 pips above the bid, and almost nobody could have traded there.

The reverse also happens. A candle with a modest wick can hide a violent sequence of ticks inside it, with large moves in both directions that happened to end near the same level.

Bar charts compress these details. For news, the tick-level view is much closer to the truth, and it's worth looking at after an event to understand what occurred.

Some platforms can export tick data for a given period. A quick plot of bid and ask separately for the minutes around a release shows how wide the spread was and whether the move was tradable.

The trading lesson is modest: a wick on a news candle isn't necessarily a price that could have been traded.

Getting at the tick data is the practical issue. MT5 can export ticks for a chosen period directly. MT4 stores bar history but not ticks, so tick-level analysis requires either a script that records ticks live or a third-party data source.

Setting up a simple recorder before a known event is easy: an EA that writes the time, bid and ask of every tick to a file. After the event, plotting bid and ask separately shows the spread behavior and the true price path.

The picture usually surprises people the first time. The spike that looked like a clean 30-pip move on the one-minute chart is a handful of ticks, some with 10-pip spreads. The price that was theoretically available to trade appears at fewer moments than the chart suggests.

Doing this for three or four events makes it easier to set realistic expectations about what could be captured, and what only appears to be capturable on a candle.

Does looking at ticks after a news release change the way those candles are interpreted?

[Amanhasnoname]

It changed things completely for me. I set up a simple tick recorder on MT4 a couple of years ago, after getting frustrated with some news candles I couldn't explain, and the first event I captured was a US CPI print. The one minute candle showed a lovely long wick on EURUSD, maybe twenty five pips, which I'd always read as a strong rejection.

On the tick plot, most of that wick was three or four quotes with a spread of eight to twelve pips. The bid barely reached the area the ask touched. Nobody with a normal account could have sold that high, so the rejection I'd been reading into it was mostly an artefact of how the chart drew the ask spike.

After doing this for a handful of releases, I stopped using news wicks as support and resistance levels for the rest of the session. I'll mark where the bid actually traded with some volume instead, which is usually a lot less dramatic. It's made my afternoon levels noticeably more reliable.