Spike
A spike is a comparatively large upward or downward movement of a price in a short period of time. A spike may also refer less commonly to the trade confirmation slip that shows all the pertinent data for a trade, such as the stock symbol, price, type, and trading account information. The concept of a spike in a stock’s price is used in technical stock analysis. In this case, assume that the stock’s price has trended up from a price in the low $30s to a current price near $45 per share. In addition to a price range, a technical analyst looks at the long-term trend in a stock’s price.
What Is a Spike?
A spike is a comparatively large upward or downward movement of a price in a short period of time. A good example of a negative spike in the financial markets is the infamous stock market crash of Oct. 19, 1987, when the Dow Jones Industrial Average (DJIA) plunged 23% in a single day. A price spike upward is sometimes used in contrast to a crash.
A spike may also refer less commonly to the trade confirmation slip that shows all the pertinent data for a trade, such as the stock symbol, price, type, and trading account information.
Understanding Spikes
There are less drastic examples of spikes, which are seen when investors react to unexpected news or events, such as better-than-expected earnings results. Use of the word "spike" originates from the antiquated practice of placing paper trade order slips on a metal spike upon completion.
The concept of a spike in a stock’s price is used in technical stock analysis. Technical analysis is the study of trends in stock price changes and in trading volume, which is the number of shares traded in a day or month. Portfolio managers study these historical trends to predict the behavior of stock prices in the future.
Fundamental analysis, on the other hand, evaluates a stock’s future price based on company sales and earnings. Money managers combine technical analysis with fundamental analysis to make decisions about stock prices.
Trading a Price Spike
A technical analyst may consider the price trading range for a particular stock. Assume that, over the past 12 months, a stock has traded between $30 and $45 per share. In addition to a price range, a technical analyst looks at the long-term trend in a stock’s price. In this case, assume that the stock’s price has trended up from a price in the low $30s to a current price near $45 per share.
In this scenario, if the price of the stock quickly moves below $30 or above $45, that may be a buy or sell indicator for the technical analyst. Assume that the stock has a low spike down to a trading price of $27. If the stock’s trading pattern returns to the normal trading range, the spike may be an anomaly. On the other hand, if prices start to trend downward after the low spike, the spike may be an indication that news about the company has changed investor opinions about the stock. A technical analyst may use this trend as a reason to sell the stock.
Spikes: How a Trade Is Confirmed
The term spike also can refer to a trade confirmation, which is the written record of a security transaction. The Securities and Exchange Commission (SEC) monitors how investment information is disclosed to investors. One SEC disclosure requirement is to provide a trade confirmation whenever a security is traded.
The trade confirmation includes a description of the stock or bond, along with the exchange where the transaction took place. The broker confirms the number of units traded, which may be shares of stock or the par amount of bonds bought or sold, along with the security's symbol.
Related terms:
Bond : Understanding What a Bond Is
A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. read more
Chartist
A chartist is an individual who uses charts or graphs of a security's historical prices or levels to forecast its future trends. read more
Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average (DJIA) is a popular stock market index that tracks 30 U.S. blue-chip stocks. read more
Downtrend
A downtrend refers to the price action of a security that moves lower in price as it fluctuates over time. read more
Earnings Announcement
An earnings announcement is an official public statement of a company's profitability for a specific time period, typically a quarter or a year. read more
Fundamental Analysis
Fundamental analysis is a method of measuring a stock's intrinsic value. Analysts who follow this method seek out companies priced below their real worth. read more
Market Momentum
Market momentum is a measure of overall market sentiment that can support buying and selling with and against market trends. read more
Money Manager
A money manager is a person or financial firm that manages the securities portfolio of an individual or institutional investor. read more
Runaway Gap
A runaway gap, typically seen on charts, occurs when trading activity skips sequential price points, usually driven by intense investor interest. read more
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is a U.S. government agency created by Congress to regulate the securities markets and protect investors. read more