Spread as a signal nobody charts

[Fairman]

Spread as a signal nobody charts

The spread is usually treated as a cost to minimise. It is also information.

When the spread on a pair widens suddenly while price barely moves, liquidity providers are stepping back. That often comes just before a burst of volatility, because they expect trouble or know a large order is on the way.

When the spread tightens to its minimum and stays there, the pair is well supplied with liquidity and orders get filled cleanly. That is when scalping works best.

A rough routine: log the spread every few seconds for a week, then overlay it on price. Many traders find that the spread changes lead price changes by a second or two, especially around data releases and session opens.

Some custom indicators plot the spread directly beneath the chart. It takes ten minutes to set up and reveals a hidden layer of the market.

One caveat: a widening spread has many causes. It can be a pre-news retreat, a rollover effect, a feed problem, or a real shift in liquidity. Reading it as a signal requires knowing which of these is in play, and the calendar plus the clock usually tell most of the story.

Has the spread ever given an early hint of a move before the chart showed anything?