Spike and Ledge
The course pattern "Spike and Ledge" was presented by Linda Raschke in the book "Top-Trading-Profits". Spike and Ledge is a Day Trading tactic that recognizes a trend reversal after very fast and strong price movements when the buy pressure has exhausted. For Day Trader, this strategy has two huge advantages. Firstly, the risk can be effectively limited by an initial stop price. Second, fast and high price gains are waving when a trend reversal develops from an extreme situation.
The "Spike and Ledge" formation consists of 3 components:
- Spike: A spike is a fast and strong course of movement. The steeper the spike goes out, the better. The goal is to have an extreme situation, where the purchasing power of the bulls has exhausted and the follow-up buyers are missing.
- Ledge: In the chart, the Ledge is the first consolidation step after the spike has trained. The consolidation step (ledge service then as a trigger mark to allow itself to be stuck in the position via stop sell.
- Stop Course: Once the position has been opened, the stop course for the position is placed immediately above the high of the consolidation, which has been trained according to the spike.
- Ledge: Max price range (in points): Define how great your max price range for the ledge should be. Higher timeframes = greater range (50p for H1 for example) and vice versa for lower timeframes
- Ledge before spike: Min length (in bars): Define how many bars there should be before a spike, a ledge in this case is a consolidation before a breakout
- Ledge after spike: Min length (in bars): Define how many bars you need after the spike for consolidation. 15 is recommended
- Spike: Min range (%% of ledge max range): Here you define the spike itself. The spike is defined by multiplied percent of the ledge before
- Spike: Max length (in bars): Define how many bars a ledge is allowed to have
- History Bars Limit: Define how many bars should be scanned for this formation
- Alert (Popup/Email/Push): Choose your favorite alert-method.
This strategy works on every time frame and currency / indices. Recommended are timeframes H1 + but if you change the settings it is possible to trade on lower timeframes. This strategy is very good for indices or stocks, too.