Can anyone explain why I often see huge price spikes on no news in several markets (CL, Bonds, ES)?
Is it just someone with huge equity moving the markets when they wish? I mean, I look at the chart and think "wow, that was a huge move in a matter of seconds..." Then I look at the scheduled news events/reports and see nothing significant...
In all likeliness there usually is a reason, you're probably just not looking hard enough. But even still with that being said there doesn't have to be a reason every time.
Best answer I can give you is the market is like a huge weegie board that can either spell sudden death or fortune in a matter of seconds or minutes with no heads up. That's the price you pay as a trader to play the game. The only thing you should be sure to do is use a stoploss and be alert or hold on to your seat and ride it if it's going in your direction. A lot of the major players will actually keep adding onto their position rolling into massive profits for no reason other than it's still going in their direction. Many traders thrive on breakout volatility, others make money fading such moves but know when to take a loss if it keeps going against them. When you stay in this game long enough you start to see some pretty crazy irrational moves and I mean account vanishing moves. Usually even the "meaning" is irrelevant after it happens because not everything is announced in a widespread timely or orderly fashion. For example pull up a daily chart of the USD/CHF, that happened in 3 minutes with no warning. Hell even a hacked twitter account could send the markets into turmoil and have lol! Be careful and cross your fingers, maybe someday you'll be able to catch the entire random move.
Also understand that many traders who do this for a living have no idea why the market moves 99% of the time and it doesn't matter because they still can make money with the 1%.
Last edited by Itchymoku; February 2nd, 2015 at 07:24 AM.
The following user says Thank You to Itchymoku for this post:
It happens when market makers remove liquidity. Generally, market makers simultaneously have pending orders above and below each price point. If they want to sell the market, they move the liquidity from above the market which will cause price to rise to give them a better price to sell. You saw what happened when the SNB removed liquidity.
John Murphy says:
"Knowing the reasons behind a stock's movement is interesting, but not critical. If your stock goes up on a given day, they won't take your money away from you if you don't know why it went up. And if you can explain why it went down, they won't give you back your lost money."
The reason will always be an imbalance between supply and demand.
It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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Well, I would like to know if there is a reason, so I can identify when these huge swings are about to happen and optimise my strategy/trading plan accordingly. For now, it just seems to come out of the blue with no way to predict.
Unless you can afford and parse machine readable news sources then you probably will not be fast enough to get out of the way of such an event. As mentioned above once these news statements come out the adjustment to the liquidity is fast and dramatic.
Back when CL was in free fall, these often occur after breaks of significant levels, like a trendline covering intraday lows. One particular day I recall, a pennant broke to the downside, got to the support trendline for the day, barely had a reaction, broke that and then I recall this crazy spike down that happened in no time. I know a lot of guys are skeptical of technical analysis, but people do use it and place stops below these levels which adds to the fire. There are also logical reasons they are significant - e.g. the break of an upward sloping trendline of the day suggests buyers are no longer willing to support higher prices, which is indiciative of a move down. They are much less likely to happen during lunch hours. And then sometimes you can have monster moves for no apparent reason at all. Earlier this week I saw an iceberg order pickup 59 contracts at 52.10 (if memory serves me right), it wasnt a particularly important level according to market profile and the charts although I do notice interesting things happen at the 10 cents level... it likes to reject off there during breaks up from round dollar prices and sometimes buyers will step in there on a downmove. Maybe two seconds after the iceberg price spikes to 52.77 in the blink of an eye, I dont think there was any way of seeing that coming. Could have been a fat finger for all I know. Was during early london time.
Understanding yourself is just as important as understanding markets.
your question is unanswerable without specific references to the time and commodity(or equity) involved in the event.
As @TickedOff mentions it may be made made as a result of a technical event showing a bullish/bearish pattern. This could be enhanced because automated order generation (HFT) can create a cascading series of orders as one computer picks up the action of another... this of course has lead to an automatic shutdown of the market when this gets out of control.
You might find this article interesting to read on the subject.
So as I said it is impossible to answer your question without some specific example(s).
Some times it might truly be a response to news... eg: failure of a drug test, failure of meeting analyst financial expectations, death of a senior official of the company or the reverse of those example ... except the last one of course there are endless news sources than cause panic or fervor
It could just be a HFT response to real or imagined technical patterns filtered out in the computer's algorithm.
Of course we are not talking of individual small traders...but the "big boys" often the Financial institutions of the country as I understand it ...and I could be wrong there.