| Welcome Guest, please sign in to participate in a discussion. | Search | Active Topics | |
Registered User
Joined: 7/24/2005
Posts: 10
|
Occasionally, a stock price may spike momentarily out of its normal range in a very dramatic way, and then immediately return back into its regular range and continue like nothing happened. This is a rare occurance (I've seen it happening perhaps once a month on a given stock), and it is NOT a gradual move. Even in the intraday 1-min chart, it appears as a spike that lasts no more than 1 time step. Nevertheless, it is recorded on the daily chart, affecting technical indicators, scanning criteria, etc, etc. In terms of volume or duration it's insignificant (there's no accompanying volume spike), however it does affect traders that work with daily charts. What causes these dramatic spikes? Did that market maker for a moment fall asleep? Or is it a plot by someone to influence the daily charts and lead traders into wrong conclusions? How do you interpret these spikes?
As an example, today (12/8/05) CECO was trading in the range 35.5-36, and suddenly, at exactly 1:08 pm it shot up to 38.37, before returning immediately back to 36. These spikes sometimes are even more dramatic, but what really happens at that moment behind the scenes? I've seen this even on stocks with big volume, like MSFT a few days ago. What bothers me is that when there's a spike like this, the daily chart does not *really* reflect the price action of that day.
|
|
Registered User
Joined: 12/2/2004
Posts: 1,775
|
Excellent question; I know exactly where you're coming from, but I'm in the dark like you as to the explanation. However, I think that a good bit of those spikes are not real trades. I say that because sometimes I've had hard stops entered with my broker...the price spike goes through my stop and it does not trigger, even a market order. Buy like you say the spike does register on the charts, particularly the daily candle, and can be quite misleading and cause erroneous interpretations.
|
|
Registered User
Joined: 12/19/2004
Posts: 457
|
How liquid are the stocks where you see this occur? Do you check out the data on the web?
I've seen a few charts like this, and I chalk it up to an error in the data, and move on. I notice it most in the very illiquid penny stocks, some ADR's, or low volume ETF's.
|
|
Registered User
Joined: 10/7/2004
Posts: 2,126
|
It is call data fluctuation. All data services have a disclamer and that is one of the reasons why. Those spikes are not tradable, and have been around forever. If you trading plataforn allows for it you can filter the spikes. The volatility of the stock has nothing to do with anything, they are not the result of any trading activity, but of data fluctuation. If the spike coincides with a transaction in the time and sales window then it is trading activity related.
How? well sometimes some idiot using direct acces makes a type mistake and buy or sells way out of range from the inside bid or ask. If you have a discount broker that usually does not happen, the will get what they call the best price available for you, which in situations like this can serve as a protection. On direct access you are on your own.
good luck
|
|
Registered User
Joined: 12/2/2004
Posts: 1,775
|
Good explanation and makes sense, thanks BigB. Luckily most serious traders use trading platforms that eliminate the typing errors, i.e. one never types a price, it's entered automatically when double-clicking the last price, bid, or ask on their streamer, and if that price is not suitable easily changed by scrolling to price you want via mouse click and hold. I betcha then that's it's someone most times using a discount broker's basic trading window where you're forced to type in the price.
|
|
|
Guest-1 |