Fading the spike: why some moves snap back and others don't
Posted: Sun Nov 01, 2026 12:59 am
A pair jumps eight pips in three seconds. The temptation to fade it is strong, since sharp moves often retrace. Sometimes they do. Sometimes they just keep going.
The difference often lies in the cause. A spike driven by a thin market, a single large order, or a quote glitch tends to retrace as liquidity returns. A spike driven by information, such as news, a headline, or a policy change, represents a repricing and tends to hold.
Clues exist. Spread behavior: a spike with a normal spread is more likely to be trade-driven. A spike with a blown-out spread is often liquidity withdrawal. Volume: tick activity rising with the move suggests broad participation. A single burst with sparse ticks suggests a lone order.
Time of day matters. Spikes in the dead hours of the night are more likely to fade than spikes at the London open.
Even with all this, a fade is a bet against momentum with an unclear stop. Waiting for a sign of stabilization, such as the first higher low after a down spike, reduces the risk.
What distinguishes a spike that retraced from one that kept running, looking back at past trades?
The difference often lies in the cause. A spike driven by a thin market, a single large order, or a quote glitch tends to retrace as liquidity returns. A spike driven by information, such as news, a headline, or a policy change, represents a repricing and tends to hold.
Clues exist. Spread behavior: a spike with a normal spread is more likely to be trade-driven. A spike with a blown-out spread is often liquidity withdrawal. Volume: tick activity rising with the move suggests broad participation. A single burst with sparse ticks suggests a lone order.
Time of day matters. Spikes in the dead hours of the night are more likely to fade than spikes at the London open.
Even with all this, a fade is a bet against momentum with an unclear stop. Waiting for a sign of stabilization, such as the first higher low after a down spike, reduces the risk.
What distinguishes a spike that retraced from one that kept running, looking back at past trades?