Spike, How to Recover When One Happens

24. Getting an occasional spike is unavoidable

spikeThis is an image of a spike. You see the price in the tick chart as a more or less horizontal line. Then it suddenly spikes up or down.

Suppose you had an amazing trade potential coming up. It had 7 points with Cash Trap. Imaging you want to call at 701 or less and the level line in this image is 701. You press the Call button while you are at 701.

spikeIn the split second your finger is coming down on the Call button, the price spikes up to 723 and then comes down again. A stoke of bad luck made you Call at 723, drastically reducing your chance of winning the trade.

Let’s say that your personal Cash Trap policy is that you can trade as follows:

  • 5 points, 1% of your account,
  • 6 points, 2% of your account,
  • 7 or more points, 3% or your account.

This is my strategy: I always trade with 1% of my account. But, I’m allowed to trade 3% of my account. So, if the price gets below 701, I allow myself to make up to 2 more 1% trades.

If the trades close somewhere between 701 and 723, I will still be money ahead.

Note: Even if it was a 5 point Cash Trap trade, I would make another trade during this spike scenario. My chances of losing my money would be drastically reduced.


Think of this scenario:

  • You were able to make a second call at a reasonable price.
  • You are presently in a losing position but expect the price to rise anytime now.

spikeAnother alternative for you is to rollover. You can click the icon on the clock below “Rollover” in the lower right-hand column. This will increase the amount of your trade by 30% and double your trade time. (E.g., if you were in a 3 minute trade, that will increase to a 6 minute trade.) Note that there are some limitations to when you can rollover. The icon of the clock will not show up unless:

  • Your trade is out of the money (not in profit),
  • You have enough funds (by using rollover, your investment amount will be increased on 30%) and
  • Time remaining >1/4 from chosen period. (E.g., If this is a 3 minute trade, you must have more than 45 seconds left in the trade.)

Too spikey? Stay away

Look at this tick chart of USDJPY. It is just too spikey and therefore hard to predict your entry point.

I would recommend not trading at this point at all. It is just too unpredictable.



Related page

Day trading forex


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