Forex

The spike top and its inverse, the spike or V-bottom, is indicative of
a panic rush to buy or sell, generally due either to greed or fear or a
combination of the two. The panic pushes prices to an extreme when,
in fact, the overriding market momentum is in the opposite direction.
Sugar in late 1975 exhibited such a spike formation (see Figure
3A-1). In a topping formation, buyers rushed into the market in fear,
either panicked to cover a losing short position or afraid that sugar
would disappear forever. The sellers delayed liquidating their positions
because of greed, that is they hoped the price would continue
rising until the market was so overdone to the upside that it crashed
of its own weight.
As is often the case with geometric formations, the spike was accompanied
by a traditional bar reversal pattern, in this case an island
reuersal. In an uptrend, an island reversal is defined as a pattern
in which a market gaps higher and then follows a bar that gaps to
the downside, leaving a lone bar or “island” above the market. The
reverse is true at a market bottom. As a general rule, the bar sitting
above the market will open and close in the lower half of the bar’s
range, while at a bottom, the open and close will be in the upper half
of the bar’s range.