What happens in the second after a spike

[Amanhasnoname]

Price spikes, a sudden move of several pips in a second or two, have a typical aftermath. Studying it carefully can pay off.

Many spikes are caused by a single large order hitting thin liquidity. Once the order is done, quotes recover and price retraces part of the move, sometimes most of it, within seconds. Others reflect real news, and price continues in the same direction.

Telling them apart in real time is the problem. Useful clues include the spread behaviour, whether related pairs moved too, and whether a scheduled event just occurred. A spike on one pair alone, with no news, leans toward a liquidity event. A spike across all dollar pairs at 8:30 leans toward real information.

Recording spikes and what happened over the next 5, 15 and 60 seconds produces a useful table. Patterns usually emerge, such as the typical retrace percentage.

It also shows the risk. Plenty of spikes keep going, and fading them without a clear reason hurts.

A related habit worth building is timing the first retrace. If price gives back a third of the spike within two seconds, it was probably a liquidity event. If it holds for five seconds without a retrace, the move has real support behind it.

How do you separate spikes that revert from spikes that run?