candle stick 2 - spike and reversal

Candlestick II: Spikes Days

Apart from the popular patterns described in the previous articles, there are other patterns that are indicative of the market's psychology that are worth to take a look.
A spike high is a period whose high is sharply above both the high of the previous period as well as the high of the following period. Conversely, a spike low is a day whose low price is sharply below both the low of the following period as well as the low of the previous period. Spikes can often signal reversals of the most recent trends and they can often look similar to hammers and hanging man.
The greater the spike is - meaning the larger the difference between the high/low on the spike and the high/low on the periods before and after the spike - the greater its significance. Also, a spike high's significance also increases when the market is trending upwards, while a spike low's significance increases when the market is trending downwards.
The charts below illustrate how spike highs and lows can be identified, and what they can signal for traders who choose to incorporate them into their trading arsenal.

 Reversal Days

A reversal high day is a day in which the high price reaches a level higher than the previous high, and then reverses to close below the previous close. Like spike days, a reversal high day's mirror image is a reversal low day, in which the market sets a new low before reversing to close above the previous close. Also like spike days, the significance of reversal days increases when there is a preceding up trend (for reversal high days) or a preceding downtrend (for reversal low days).
While reversal days are widely watched and hence warrant attention from all traders, they are still prone to yielding many false trade signals. As a result, many traders who rely heavily on candlestick patterns prefer to see a reversal high day reverse to close below not just the preceding day's close, but also the preceding day's low. This signifies a strong reversal in the market, suggesting that sellers have taken control and that now may be a time to enter a short position.
The chart below illustrates how reversal day can be identified and what they can signal for traders who choose to incorporate them into their trading arsenal.