Reading the chart of Ethereum with sigma spikes: cryptocurrencies aren’t so cryptic after all…

One of the tools I’ve come to rely on over the last 10 years is an indicator I call Sigma Spikes. (Read about it and how to calculate here.) This is a volatility-adjusted measure of closes, meaning that it tells us if any single move on a chart is a big (and maybe significant) move.

There are many ways to use this tool, from screening to monitoring markets to setting up trading patterns. One of the most interesting things is that characteristics of sigma spikes tend to be persistent.

That might be a confusing statement, so think of it in two ways: first, some markets tend to make big (+/- 3 sigma) moves frequently. We designate markets (stocks, currencies, commodities, etc.) that do this as “unstable” and something that has shown a high degree of instability in the past will tend to show it in the future. (Hint for options traders: big moves like that are very bad for premium sellers and good for buyers…)

Second, some markets tend to show the majority of big moves on the upside or downside. Look at the daily chart of Ethereum and notice how few of the large moves were to the upside (shaded blue). There are almost no > +2 sigma moves, while there are many more on the downside. Even the smaller significant moves are almost all the downside.

This is a quick look at trend dynamics from an objective perspective. Cryptos are some of the most emotional markets, and all the dialog on them is clogged with scammers and posers pretending to be experts. When you can read the message of the markets, you don’t need experts and you wont be misled by noise and emotion. That’s exactly what a volatility-adjusted measure does: it cuts right through the noise and shows us what’s important.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.