A Complete Guide to the Futures Market, 2nd Edition

CHAPTER 9

Chart Patterns

Never confuse brilliance with a bull market.

—Paul Rubink

■ One-Day Patterns

Spikes

A spike high is a day whose high is sharply above the highs of the preceding and succeeding days. Frequently, the closing price of a spike high day will be near the lower end of the day’s trading range. A spike high is meaningful only if it occurs after a price advance, in which case it can often signify at least a temporary climax in buying pressure, and hence can be viewed as a potential relative high. Sometimes spike highs will prove to be major tops.

Generally speaking, the significance of a spike high will be enhanced by the following factors:

1. A wide difference between the spike high and the highs of the preceding and succeeding days.
2. A close near the low of the day’s range.
3. A substantial price advance preceding the spike’s formation.

The more extreme each of these conditions, the greater the likelihood that a spike high will prove to be an important relative high or even a major top.

In analogous fashion, a spike low is a day whose low is sharply below the lows of the preceding and succeeding days. Frequently, the closing price on a spike low day will be near the upper end of the day’s trading range. A spike low is meaningful only if it occurs after a price decline, in which case it can often signify at least a temporary climax in selling pressure and hence can be viewed as a potential relative low. Sometimes spike lows will prove to be a major bottom.

Generally ...