Today's 52-Week Highs

Investors who look to actively trade stocks and other securities use technical analysis to find patterns and identify trends to help predict the direction of a stock’s price. Many traders use indicators such as average daily trading volume (ADTV) and moving average to identify changes in a stock’s momentum that can help determine stock price movement.

With that said, markets do not always behave in an orderly fashion. However, price movement around a 52-week high is generally seen as a sign that stocks are ready to move in a direction that follows that movement. Traders look for momentum and generally. So when they see price movement that creeps towards a high, they can count on other investors jumping in.

The 52-week high listed for a stock is the closing price of a stock. During a trading day, a stock may move above its 52-week high. However, if it closes below the previous session high, the 52-week high remains unchanged. These intra-day movements, called reversals, while not changing the 52-week high can be significant to traders.

At one time, a move above the 52-week high was seen as a very reliable indicator of future price movement. However, as electronic trading has become available to more than just individual investors; stock price reversals at these thresholds have become more common. For some traders, this has made the 52-day high a less significant indicator.

When a stock climbs above its 52-week high but fails to hold that gain, it can be a technical indicator that the stock has topped out, but not always. In many cases there is still a “bullish” sentiment surrounding the stock. And in some cases a stock will make multiple attempts before finally closing above its 52-week high. However, momentum traders typically view stocks that rise above, then fall below, their 52-week high as prime targets for profit taking.

One of the most common strategies for day traders is known as the “pop” strategy. This strategy is based on technical indicators, but rooted in market psychology.

The reasoning is that markets usually will test a high before ultimately breaching it. Traders that use this strategy look for a stock that has significant momentum indicating that it wants to break a high. Once the stock pulls back the first time, it may take anywhere from a few days to a few weeks for a stock to try to reclaim that position.

As traders see the stock approach the 52-week high they should set a stop order just above or below (e.g. $0.25) the price where the stock crossed the 52-week line the first time. When the stock reaches that price the order will be executed and the trader can then set an appropriate stop loss to help them exit the trade.

Other successful trading strategies involve finding the 52-week high and low range. This is a very simple calculation. You subtract the 52-week low from the 52-week high. Once you know the range, you can determine the average weekly and daily volume.

Here’s an example. Company ABC has a 52-week high of $117.35 and a 52-week low of $75.36. The range is 117.35-75.36=41.99. Once you have this number you can divide by 52 to get an average weekly range of $0.81 cents or an average daily range by dividing by 252 (based on number of trading days, not calendar days) and get $0.16 cents per day. Now that you’ve calculated the average daily or weekly range, you can monitor the stock for trends and use the average daily or weekly range as a point to set stops for your trade.

So how do you use this to make money?

First you can use average daily or weekly range to look for breakouts especially at historically key price levels such as $10, $25, $50 or $100. Knowing the average weekly or daily range can help confirm price movement when stocks breach these levels higher or lower.

However, a word of caution especially for day traders is that stocks can be prone to intra-day reversals meaning that a price may rise above the high but then fall below or vice versa. Since these can happen very quickly, it’s important to set appropriate stops.

A second strategy is to put a mid-line between the high and the low. To establish the mid-line you will add the 52-week high and the 52-week low and divide by 2. In our example, 117.35 + 75.36 = 192.71 which when divided by 2 = 96.35. This would put your midline at approximately $96.35. You can then use this middle line to look for breakout patterns:

• If the stock price breaks above the middle line, that is a bullish indicator that suggests the price will increase towards the 52-week high.
• If the stock price breaks below the middle line, which is a bearish indicator that suggests the price will decrease towards the 52-week low.
• If the stock price reverses off the middle line, you can use the average daily or weekly range to trade in the direction of the bounce.