November 26, 2025
6 mins read
Here is the scene: You're sitting by yourself with a cup of coffee, gazing at your trading chart, when suddenly, the price rocks up (or down). That is what we call a spike—a very fast, quick, and sudden price movement, occurring faster than you can refresh your screen.
Spikes are those fleeting moments in the market that send traders into either panic or celebratory mode. Spikes arise when events unfold, such as breaking news, economic data releases, earnings reports, or big traders moving large volume positions into the market. In short, spikes happen when emotion enters the market.
Now, spikes are not just chaotic—spikes tell a story, and with every sudden price movement, buyers and sellers are engaged in combat. If a trader is keenly aware of the stories below the spikes, they can gain more clarity on whether the market is simply excited about caffeine or transitioning to a new trend.
So, let's examine spikes and figure out why they are important, how to spot a spike, and how to harness the frenzied energy of spikes without losing it.
A spike is when the market seems to have sneezed suddenly. One second, prices are without much action, the next, they are jumping or falling drastically. This usually happens when something unexpected occurs — an earnings surprise, a sudden influx of buy or sell orders, or breaking news on a global level.
In technical analysis, spikes are symbols for sirens. They attract attention because they indicate a rapid change in demand or supply. You will frequently notice that fixes on spikes denote spikes in volume—meaning lots of participants somewhere acted at nearly the same instant.
Here's what to look for:
Change in price against trend: A large move against the normal trend might indicate panic or new information.
Volume: A spike that occurs without commensurate volume is akin to a drama without an audience; it’s unlikely to sustain momentum.
Speed: Spikes occur in measured minutes, not hours; this is what makes them risky.
As you study these rapid, short bursts of price, you begin to create a small library of these quick price moves to draw on — how the market overcooked the price move, settles down, and sometimes reverses direction. It is not about predicting a spike from an unknown origin; it is about looking at the market behaviour under pressure.
Spikes have a personality — bold, brief, and loud. Here is what makes them stand out:
Quick price movement: Prices jump or drop sharply within minutes or hours. It is that sudden movement that creates the “spike” look on charts.
High trading volume: More traders get involved when the spike happens, confirming that the move is not random.
Short lifespan: Spikes rarely last long. Prices either snap back to their old range or move further in the same direction before calming down.
Emotional impact: Spikes feed off market psychology. They are fuelled by fear, greed, or a rush to react — all the emotions traders battle daily.
If you look closely, spikes are really flashpoints of collective sentiment. They represent where the traders are panicking, where they are getting hopeful, and where they are losing control. Spotting those clues is how you can get prepared for the next move in the market.
Not every spike is the same. Some represent opportunity while others are a warning of danger. Here are some ways to tell the difference:
A bullish spike is characterised by prices shooting upward significantly and unusually. It often occurs after good news or sudden buying from investors. The large spike indicates significant buying pressure.
A bearish spike is the inverse — typically, prices drop sharply and rapidly, either following bad news or due to panic selling. It is a clear indication that sellers are in control.
In the reversal spike, prices shoot sharply one way, only to immediately reverse. Typically, these are much sharper spikes at higher levels (at or near major levels of resistance or support) and often signal traders jumping on a trend too late. Reversal spikes are cavalry; they can sometimes indicate reversals or fakes. It is best to wait for additional confirmation before acting.
Spikes inform you where real emotion exists in the market, whether investors are afraid, excited, or confused. Spikes mark important inflection points and provide valuable information about market conviction.
This is why spikes are important:
Market sentiment: Spikes reflect collective mood swings induced by news, rumours, or data.
Trend reversals: Big spikes can sometimes mean the former trend has simply reached its final stage.
Volatility zones: Spikes can represent when the market is experiencing volatile behaviour — a signal to tighten stops or start looking to wait for the market to settle down.
When you connect spikes to context - such as levels of support & resistance, you will have a better understanding if the move is bringing potential long-term change or just temporary noise.
Additional Read: 5 Technical Analysis Tools For Stock Market
Detecting a spike is simple; deciphering its significance is a skill. Some technical indicators allow us to unravel the meaning behind the move:
Volume indicators: Tools like On-Balance Volume (OBV) or simple volume bars measure whether a price move had genuine participation behind it.
Moving averages: If prices move too far from their averages, that too can indicate a spike; pay attention to the rate that prices return to the mean.
Bollinger Bands: When price breaks out of either the upper or lower band, that is your volatility breakout. Whether the price persists or snaps back defines the trade.
Relative Strength Index (RSI): Spikes usually result in
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Decimal trading refers to the system where stock prices are quoted in decimals rather than fractions. Decimal trading enables more accurate pricing and tighter bid-ask spreads which is quite helpful when trading gets complicated.
Instead of using fractions like 25 1/2, the price of a stock is quoted in decimals in decimal trading, such as ₹25.50. This way, investors find it easier to decipher the market swings and adjust their trading process accordingly.
Decimal trading was introduced in the U.S. in the early 2000s, replacing the fractional system. However, in India, stock prices have been quoted in decimals since the adoption of electronic trading platforms.
Some of the major benefits of decimal trading include:
Increased Precision: Decimal trading allows for more accurate pricing.
Tighter Spreads: Traders profit when there is typically less of a difference between the purchasing and selling prices.
Enhanced Liquidity: More price points lead to increased trading activity, thereby improving market liquidity.
One potential downside is the increased competition among traders, especially for high-frequency trading, where decimal pricing can make it more difficult to gain a sizable advantage.
Decimal trading allows small investors to enter and exit positions at more advantageous prices, thereby reducing costs and increasing total returns.
To begin with decimal trading, you will need to open a demat account with a registered broker. However, to get the most out of the trading, make sure the platform you select provides real-time data and advanced trading tools. This will help you identify several indicators along with spikes in trading.
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