The "Spike as Support and Resistance (S&R) Pattern" in forex is a technical pattern where a sudden, sharp price spike serves as a temporary or long-term support or resistance level on a price chart. This pattern typically forms after a significant price movement, such as a single large candlestick (spike) caused by market news, economic data, or high-volume orders. Traders interpret these spike levels as zones where price has shown a strong reaction and may react similarly in the future.

Key Characteristics of the Spike as S&R Pattern

1. Formation of the Spike:

   • A spike is formed when the price moves sharply up or down within a short period, often with high trading volume.
   • This movement often appears as a long candlestick on the chart, with little to no retracement during that period, indicating a strong shift in market sentiment.

2. Acting as Support or Resistance:

   • If the spike is downward, the lowest point (or “bottom” of the spike) may become a support level. When price retests this level, it could bounce upward.
   • If the spike is upward, the highest point (or “top” of the spike) may become a resistance level. When price retests this level, it may struggle to break through and could reverse downward.

3. Retest of the Spike Level:

   • The price often returns to test these spike levels. If it respects the spike level as support or resistance multiple times, it strengthens the validity of this level.
   • A retest with price rejection at the spike level is considered a confirmation, and traders may place entries based on these zones.

4. Psychological Impact:

   • These spike levels can hold psychological significance as they represent extremes where traders quickly reacted, creating potential areas of price exhaustion.
   • This reaction becomes a reference point, indicating areas where buyers or sellers previously exerted significant pressure.

5. Trading Strategies with the Spike as S&R Pattern:

   • Breakout and Reversal Trades: Traders may look for potential breakout trades if the price closes strongly above or below the spike level.
   • Continuation: If the spike aligns with the ongoing trend, traders might interpret it as a continuation signal, with a spike zone acting as a buffer for future pullbacks.
   • Stop-Loss and Take-Profit Placement: Spikes provide defined levels for stop-loss orders below support spikes or above resistance spikes. Take-profit orders can be set at nearby support or resistance zones, depending on the setup.

Example of Spike as S&R Pattern

Assume the USD/JPY pair has a sudden downward spike after a major economic report. This spike forms a support level at 150.00. Over the next several days, the price returns to 150.00, but buyers enter and the price bounces, confirming this level as a support zone. If the price approaches this level again, traders might expect it to act as support once more, providing a possible entry for a long position. Alternatively, if the price breaks below 150.00, it might indicate a bearish continuation.

Advantages and Considerations

• Advantages: The spike as an S&R pattern provides a clear reference for potential support or resistance, helps set well-defined stop-loss points, and often aligns with sentiment-driven moves, which tend to have stronger follow-through.
• Considerations: This pattern is sensitive to news and economic events, so understanding the fundamental causes of the spike can help gauge its reliability as support or resistance.

In summary, the "Spike as S&R" pattern in forex highlights critical areas where price experienced rapid movement and reversal, giving traders zones to watch for future trade setups.