In this project, quant analysts Petra Kamenická, Erik Lundgren and Frej Örnberg, investigate price spike reversals through different ways of quantitative analysis and assess whether there is any preceding bias or non-randomness in the forex market.

The pattern is defined as a sharp price movement in any direction (a spike), followed by a return to the previous price level (a reversal). Additional constraints concern the magnitudes of the spikes and reversals, as well as the time frame allowed for each individual part.

11 years of minute resolution data for the EUR/USD currency pair was analysed, amounting to 2 862 trading days, 18 203 spikes and 1 733 reversals. As a method of investigation, each complete reversal initiated a simulated trade, and a total of four trading strategies are tested individually for the entire data set.

The results on their own do not provide any evidence for a bias or non-randomness following the investigated pattern, but suggest that further research is warranted. Many promising paths of future exploration are discussed, together with the results that indicate their potential.

To read the full report, please see attached PDF below: