What is a 52 week high / low?
A 52-week high / low is the highest and lowest price at which a security traded in the previous year. It is a technical indicator used by some traders and investors who consider the highest or the lowest over 52 weeks as an important factor in determining the current value of a security and predicting future price movements.
As a stock trades in its 52 week price range (the range between the low of 52 weeks and the high of 52 weeks), these investors may show increased interest when the price approaches the closest high or low.
Understanding the 52 week high / low
One of the uses of the 52-week up / down number is to help determine an entry or exit point for a given stock. For example, traders can buy a stock when the price exceeds its 52-week high, or sell when the price falls below its 52-week low. The logic behind this strategy is that if the price goes out of the 52 week range (either above or below), there is enough momentum to continue the price movement in the same direction.
According to research conducted in 2008, the volume of transactions in a security peaked after crossing a barrier of 52 weeks. Small stocks crossing their 52-week high produced surplus earnings of 0.6275% the following week. Likewise, large stocks produced gains of 0.1795% the following week. Over time, however, the effect of the 52-week highs (and lows) has become more pronounced for large stocks. Overall, however, these trading ranges have had a greater effect on small stocks than on large stocks.
Determine the 52 week high / low level
The 52-week high / low is based on the daily closing price of stocks or indices. Often, a stock may actually exceed a 52-week high during the day, but end up closing below the previous 52-week high, and thus not be recognized. The same applies when a stock reaches a new low of 52 weeks during a trading session but fails to close at a new low of 52 weeks without being recognized. The cliché, “if a tree falls in the woods and no one hears it, has it really fallen?” apply. However, in these cases, not doing a new 52 week close up / down can be very important.
52-week high intraday reversal
A security that registers a 52-week high during the day but closes negatively during the day may have peaked, which means that its price is not expected to rise much in the short term. Often professionals and institutions use 52-week highs as profit stop levels to lock in gains. While the 52-week highs represent bullish sentiment, many investors are also willing to forgo further price appreciation in order to block some or all of their gains. Stocks that reach new highs over 52 weeks are often the most likely to take profits, resulting in withdrawals and trend reversals.
52 week weak intraday reversal
When a security hits a new 52-week low during the day but fails to make a new 52-week close low, it could be a sign of a trough. This can be determined if it forms a daily hammer candlestick, which occurs when a security trades considerably lower than its opening, but rallies later in the day to close above or near its price. ‘opening. This can encourage short sellers to start buying to cover their positions while the bargain hunters come out of the fence. Actions that make five consecutive daily 52-week lows are most likely to see strong rebounds when a daily hammer is formed.
Key points to remember
- A 52-week high / low is the highest or lowest price at which a security was traded in the previous year. It is used as a technical indicator.
- Typically, the highest over 52 weeks represents a level of resistance while the lowest over 52 weeks is a level of support. Traders use these numbers to trigger actions related to the purchase or sale of their holdings for a particular security.
52 week high / low price example
Suppose the ABC stock is trading at a peak of $ 100 and a minimum of $ 75 in one year. Then, its 52 week high / low price is $ 100 / $ 75. Generally, $ 100 is considered a resistance level while $ 75 is considered a support level. This means that traders will start selling the stock once it reaches this level and they will start buying it once it reaches $ 75.