What is the Second Spike Chart Pattern in Technical Analysis?

<p>Chart patterns are valuable because they give us clues as to what the markets might do next.</p>
<p>In this tutorial, I'll introduce you to the <strong>Second Spike chart pattern</strong>. I'll show you how to identify it properly and what it can tell you about what the market is likely to do next.</p>
<p><strong>The Second Spike chart pattern is a reversal pattern that happens after a strong move, usually in the bullish direction. It signals that the market could be reversing and may provide a trading opportunity in the opposite direction. </strong></p>
<p>Now let's get into how to identify and trade this pattern.</p>
<h2>How to Identify a Second Spike</h2>
<p>There are basically 3 components of this chart pattern.</p>
<p>Once these characteristics are present on your chart, you may have a <strong>Second Spike</strong>.</p>
<h3>1. Look for a Strong Move</h3>
<p>The first criteria to look for is a strong move in the upward direction.</p>
<p>This pattern works best with bullish reversals, so I'm only going to look for strong upward moves. It can work for bearish reversals, but I've noticed that it's less reliable.</p>
<p>But test both to see what works best for the market you're trading.</p>
<p>Here's an example of a strong bullish move.</p>
<p><img decoding="async" fetchpriority="high" class="alignnone size-full wp-image-1023556" src="https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-33-44.png" alt="Strong move" width="1277" height="707" srcset="https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-33-44.png 1277w, https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-33-44-768×425.png 768w" sizes="(max-width: 1277px) 100vw, 1277px" /></p>
<h3>2. Mark off the Elbow</h3>
<p><a href="https://www.tradingheroes.com/trading-take-profit/" target="_blank" rel="noopener">The elbow</a> is a zone on a chart where price previously turned.</p>
<p><strong>Mark off the bottom of the turn, until about half way to the high of the move.</strong></p>
<p>You're going to be targeting this area if the market does a <strong>Second Spike</strong>.</p>
<p>This is what it looks like.</p>
<p><img decoding="async" class="alignnone size-full wp-image-1023555" src="https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-32-32.png" alt="Second spike chart" width="1277" height="707" srcset="https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-32-32.png 1277w, https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-32-32-768×425.png 768w" sizes="(max-width: 1277px) 100vw, 1277px" /></p>
<h3>3. Look for a Retracement Back Into the Elbow</h3>
<p>Now that you have the retracement zone marked off, it's time to watch your chart and wait for price to move back into that area.</p>
<p><strong>Set an alert if your platform has that feature. </strong></p>
<p>This will ensure that you never miss a trade.</p>
<p>Once price enters the zone, it's time to take a trade.</p>
<h2>How to Trade a Second Spike</h2>
<p>Now as you may have guessed, <strong>the ideal entry for trading this chart pattern is to take a trade as soon as price gets into the elbow zone. </strong></p>
<p>This is called a <strong>Hard Fade entry</strong> and you can <a href="https://www.tradingheroes.com/trading-strategy-optimizations/">learn more about it here</a>.</p>
<p><em>Do not wait for any confirmation. </em></p>
<p><strong>Entering as soon as price enters the elbow zone will give you the best chance of success and is usually the cheapest price you're going to get on this trade.</strong></p>
<p><img decoding="async" class="alignnone size-full wp-image-1023558" src="https://www.tradingheroes.com/wp-content/uploads/stop-loss-1.jpg" alt="stop loss on second spike trade" width="1277" height="758" srcset="https://www.tradingheroes.com/wp-content/uploads/stop-loss-1.jpg 1277w, https://www.tradingheroes.com/wp-content/uploads/stop-loss-1-768×456.jpg 768w" sizes="(max-width: 1277px) 100vw, 1277px" /></p>
<p>The example above shows an idea entry in the elbow zone. The trade worked out well, with price moving back down near a previous support level.</p>
<h2>Examples of Second Spikes</h2>
<p>Here are more examples, so you can see this concept in action. I'll show you each step of the process, so you'll have a better idea of what to look for in real-time.</p>
<h3>Example 1</h3>
<p>After a big bullish move, price starts to stall and forms a top.</p>
<p>At this point, I mark off the elbow zone, as shown in this chart.</p>
<p><img decoding="async" loading="lazy" class="alignnone size-full wp-image-1023551" src="https://www.tradingheroes.com/wp-content/uploads/strong-move1.jpg" alt="Second spike step 1" width="1200" height="600" srcset="https://www.tradingheroes.com/wp-content/uploads/strong-move1.jpg 1200w, https://www.tradingheroes.com/wp-content/uploads/strong-move1-768×384.jpg 768w" sizes="(max-width: 1200px) 100vw, 1200px" /></p>
<p>Next, I wait for price to re-enter that zone and I take a trade in the opposite direction. Here's where I would take a short trade.</p>
<p>It can take a little bit of practice to enter these trades because the big bullish bar might make you nervous.</p>
<p><em>But once you get the hang of it, that's not a big deal.</em></p>
<p>The stop loss will go above the highest high of the last move.</p>
<p><img decoding="async" loading="lazy" class="alignnone size-full wp-image-1023552" src="https://www.tradingheroes.com/wp-content/uploads/strong-move2.jpg" alt="Second spike step 2" width="1200" height="600" srcset="https://www.tradingheroes.com/wp-content/uploads/strong-move2.jpg 1200w, https://www.tradingheroes.com/wp-content/uploads/strong-move2-768×384.jpg 768w" sizes="(max-width: 1200px) 100vw, 1200px" /> Now that the trade is on, I'm just going to sit back and wait to see what the market does.</p>
<p>I would set a take profit on this trade, based on where I think price is likely to go. The horizontal lines would be my 2 potential profit targets.</p>
<p>In this example, I did not get stopped out. Price retested the elbow zone, but it did not hit the stop loss.</p>
<p>If I was able to hold the trade for this long, I would have been rewarded with a big downward move.</p>
<p><img decoding="async" loading="lazy" class="alignnone size-full wp-image-1023554" src="https://www.tradingheroes.com/wp-content/uploads/profit-targets-.jpg" alt="Profit targets on second spike trade" width="1200" height="600" srcset="https://www.tradingheroes.com/wp-content/uploads/profit-targets-.jpg 1200w, https://www.tradingheroes.com/wp-content/uploads/profit-targets–768×384.jpg 768w" sizes="(max-width: 1200px) 100vw, 1200px" /></p>
<p>As you can see, it took some time for this trade to work out, so I would have had to be patient.</p>
<p>Not all Second Spikes are clean, some of them are messy, like in this example.</p>
<h3>Example 2</h3>
<p>Now I'll speed things up a bit and put all of the information on 1 chart.</p>
<p>There was a strong upward move in the GBPJPY and there were 2 opportunities to enter a short position on a Second Spike entry.</p>
<p><img decoding="async" loading="lazy" class="alignnone size-full wp-image-1023561" src="https://www.tradingheroes.com/wp-content/uploads/GBPJPY_2023-10-04_17-00-06.png" alt="Second spike example" width="1277" height="758" srcset="https://www.tradingheroes.com/wp-content/uploads/GBPJPY_2023-10-04_17-00-06.png 1277w, https://www.tradingheroes.com/wp-content/uploads/GBPJPY_2023-10-04_17-00-06-768×456.png 768w" sizes="(max-width: 1277px) 100vw, 1277px" /></p>
<h3>Example 3</h3>
<p>This is another example where there were 2 opportunities to enter on a Second Spike.</p>
<p>If you took this trade, it would have worked out well, with price dropping below previous support.</p>
<p><img decoding="async" loading="lazy" class="alignnone size-full wp-image-1023562" src="https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-58-19.png" alt="Second spike example" width="1277" height="758" srcset="https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-58-19.png 1277w, https://www.tradingheroes.com/wp-content/uploads/EURUSD_2023-10-04_16-58-19-768×456.png 768w" sizes="(max-width: 1277px) 100vw, 1277px" /></p>
<h2>What Happens When They Don't Work</h2>
<p>If a Second Spike doesn't work, your stop loss will get hit and you're out of the trade.</p>
<p><em>It's all good, move on to the next trade.</em></p>
<p>Just like with any other profitable trading strategy, not all trades will be winners.</p>
<p><strong>But if you've backtested your strategy and it has an edge, then keep calm and keep trading.</strong></p>
<h2>Final Thoughts on Second Spikes</h2>
<p>Now that you know what <strong>Second Spikes</strong> look like, it's time for you to create a trading strategy.</p>
<p>If this chart pattern appeals to you, of course.</p>
<p>The first step is to create a trading plan. I have a <a href="https://www.tradingheroes.com/forex-trading-plan-guide/" target="_blank" rel="noopener">free worksheet</a> that will help you create a detailed trading plan.</p>
<p>Then <a href="https://www.tradingheroes.com/forex-backtesting-guide/">backtest</a> your trading strategy to see if it has an edge.</p>
<p>If your strategy doesn't perform as well as you would like, experiment with different ideas and <a href="https://www.tradingheroes.com/trading-strategy-optimizations/" target="_blank" rel="noopener">optimizations</a> until you develop a trading strategy that you're happy with.</p>
<p>Now get to work!</p>
<p>&nbsp;</p>
<p>The post <a rel="nofollow" href="https://www.tradingheroes.com/second-spike-chart-pattern/">What is the Second Spike Chart Pattern in Technical Analysis?</a> appeared first on <a rel="nofollow" href="https://www.tradingheroes.com">Trading Heroes</a>.</p>