What happens after a single huge tick

[Amanhasnoname]

A single quote that jumps several pips from the previous one invites two readings. It might be a genuine repricing, with the market moving to a new level. Or it might be a transient, a thin-book print that reverts within seconds.

The distinction determines whether to follow or fade. Statistics can help. For each large jump in the data, record the price change over the next 1, 5, and 30 seconds, and compare it to the size of the jump. Group by hour, pair, and the spread at the time.

Often, jumps accompanied by a spread widening and a sparse tape tend to partially reverse, while jumps accompanied by a surge of tick activity in the same direction tend to continue.

Conditioning on these features gives a more reliable rule than treating all jumps alike.

Costs are the catch. After a jump, spreads are wide and slippage is higher, so any edge has to be large enough to cover them.

Test with real spread data, and examine the distribution of outcomes, not just the average.

What is the typical follow-through after a jump of more than five pips on the main pair?