What Are 52 Week High/Low Levels?
Why are these levels so important to the trader who trade by analysing technical charts?
The 52-week high/low levels are considered to be significant resistance/ support levels once we check out the technical charts for trading stocks within the stock exchange.
The 52-week high/low is that the highest and lowest price of the stock within the past 52 weeks. These numbers are calculated on the daily closing share price. But remember, they are doing not show intraday highs or lows, which can be reached during a trading session.
Traders use 52-week high/low levels for several reasons, including as an indicator to work out how volatile the stock has been over the past year or if the stock is trending in one direction or the opposite.
So, in today’s blog, we’ll discuss the importance of 52 week high/low levels is and the way to trade with the same:
What 52 week high/low levels mean?
Traders use these levels as a technical indicator for analysing the present value of a stock and its future price movement.
Traders usually show an increased interest during a particular stock when its price is near the high or the low end of its 52-week price range. The range generally exists between the 52-week low and therefore the 52-week high). These levels are supported the daily price of the stock.
One shouldn’t that always, a stock may break a 52-week high intraday, but it’s going to find yourself closing below the previous 52-week high, thus going unrecognized.
This also applies when a stock makes a replacement 52-week low intraday but fails to shut below the new 52-week low.
Many websites provide stock quotes with additional information, including the company’s market capitalisation, the bid and ask prices, P/E ratio , the quantity of shares traded and also the 52 week high/lows
How to Find the 52-Week Highs and Lows
The procedure to work out the high and low for a 52-week period is fairly straightforward. you’ll determine the subsequent steps to work out what you would like to know:
· Find the stock using the symbol or name.
Look into the summary section for the 52-week high and low. In many cases, the 52-week range is provided within the summary section.
If the range isn’t provided, make sure that the worth chart shown is for a 52-week period. Hover the cursor on the topmost point of the chart. this could represent the 52-week high. Similarly, rock bottom point would be the 52-week low.
The method provided in Step 3 are often less accurate if the particular peak isn’t discernible by watching the chart. One also can download the price for the amount and apply the mathematical equation discussed earlier.
· How does this work?
The 52-week high/low helps us in predicting whether the continued trend will continue or reverse as explained below:
1. Reversal
When the stock price trades reach and shut near its 52-week high, the traders expect that the worth will trade lower within the future because the 52-week high is taken into account the resistance level.
As a result, many traders book their profits because they believe that the costs may reverse from the resistance level.
This applies to a 52-week low also, where traders expect this to be a price and expect it to rise.
Reversals are often an efficient trading strategy. for instance, if the worth fails to interrupt the 52-week high/low levels, then the traders can expect the costs to reverse from those levels.
Traders should use this information and other technical indicators and volume data. we will use additional technical indicators for predicting reversal patterns, including the descending wedge or the rounding bottom.
If the reversal doesn’t occur, one should put a stop order to attenuate the loss. However, many traders like better to wait and watch and only enter once the reversal in trend becomes apparent.
2. Trend Continuation
Other traders prefer to buy or sell when a replacement 52-week high or low is reached or the stock breaks out from these levels.
One should also check out the quantity of shares when a stock price crosses either the 52-week high or low mark. Usually, trading volume rises when the stock moves past the high or low mark, then falls.
Particularly momentum investors concentrate to 52-week high/low marks. They believe that a stock market’s recent winners and losers will remain winners and losers within the near term. This strategy is understood as “relative strength investing.”
Risks of Trading supported the 52-Week High and Low
Like every technical indicator, the high and low level doesn’t guarantee how the stock price would behave. we will point to 2 example cases when the movement is in contradiction to our expectations.
Case 1: An asset during a consolidation phase
When the worth is trading during a range-bound manner, one would expect the 52-week high to be the resistance level and therefore the low because the support. Suppose the worth is trading very on the brink of the low. therein case, we expect the worth to extend, giving the trader a buy signal. If the trader executes an extended position and therefore the price drops further, they suffer a loss. rather than trading range-bound, there might be a breakout, with the share price falling rapidly.
Case 2: An asset during a breakout phase
As mentioned earlier, if the worth exceeds the 52-week high, it might indicate a breakout within the stock price. If a trader follows this cue, he’s expected to shop for when the worth is over the 52-week high and sell when it’s less than the 52-week low. But, again, the trend might not necessarily continue the way we expect it to. you’ll see a reversal from the breakout. Traders generally await the worth to manoeuvre further away (higher from a 52-week high or lower from a 52-week low) before taking over an edge. This ensures that the likelihood of a breakout is higher.
In the two cases above, following patterns supported the range can cause a loss for the trader. a method to attenuate this loss is to take care of a stop order.
52-Week High and Low Reversals
When the stock price trades on the brink of its 52-week high, traders expect the worth to trade lower within the future. As a result, many are willing to sacrifice the potential for future profit because they believe that the scope for appreciation in price is restricted. this is applicable to a 52-week low, where traders expect this to be a price and expect it to rise.
Reversals are often an efficient intraday strategy. If the worth manages to the touch the high or low during the trading session, traders can reasonably expect the trend to reverse. Professional traders should leverage this information alongside other technical indicators also as trade volume metrics. we will use additional technical indicators to predict reversal patterns, including the descending wedge or the rounding bottom. once you see these patterns on the brink of the utmost or minimum price over a 52-week period, traders should expect a reversal.
If the reversal doesn’t occur, a stop order should be put in situ to attenuate the loss. However, as stated earlier, many traders like better to play the wait and watch and only enter once the reversal in trend becomes apparent.
