The 52-week high is the highest price a stock, or alternative security has traded during the prior 365 days or one year. Conversely, the 52-week low is the lowest price a stock, or alternative security, has traded at during the past 52-weeks or one year.
These 52-week high/low prices are key pieces of information communicated by the financial press.
A 52-week high/low intraday trading breach
A 52-week high/low is a technical indicator that some investors and day traders use to analyze the current value of stocks and predict future price movement.
Sometimes the high and low point is used as a benchmark. One that investors and traders use to raise their interest in a stock if it looks to be returning to either of these significant price points.
When focusing on a single trading session, the 52-week high and low price is based on the daily closing price for the security. Sometimes a stock may break above the 52-week high at a point during the day (intraday), but if it closes the day at a price below its prior 52-week high, the prior high will stand.
The same is true of the 52-week low. If a stock falls lower than its previous 52-week low during a trading session but fails to close at a new 52-week low, the previous 52-week low stands.
An intraday trading breach of the 52-week high/low can signify an important turn of events for traders.
Significance of a 52-week high/low
Technical analysts often use the 52-week high/low to determine a stock’s viable entry or exit point.
If the stock price breaks above its 52-week high, then the trader might see it as a good time to buy, with the reasoning that it’s likely to continue rising. The basis in this theory is that the stock is being driven by momentum, and if it’s broken through this barrier, the momentum is likely to continue for a period.
The same is true for the 52-week low. So a trader might choose to sell if the stock price falls beneath its 52-week low as downwards momentum is likely to prevail.
In this situation, a trader often uses stop-orders to start new positions or increase existing positions.
A stop-order is an order to buy or sell a security when its price moves past a specified price point.
Increased volume and a boost in momentum
The 52-week high effect is a phenomenon that reflects increased volume and momentum-like returns at the 52-week high price.
With a rise in volume comes enhanced trading, leading a share price to spike after passing the elusive 52-week price point. Several academic studies reinforce this observation.
A 2018 study revised in July 2021 shows how household investors intensify this 52-week high effect by sharply increasing their limit orders and sells at the 52-week high price.
This conduct indicates anchoring to the price point that the buyer sees as a significant point due to its prior weighting. But the rise in the volume of limit order sells at this point also creates a predictable event that gives institutional investors an edge.
Meanwhile, a 2008 study showed small stocks passing their 52-week highs enjoyed 0.6275% excess gains in the following week. While large stocks gained 0.1795% in the following week.
Over time, the effect of 52-week highs (and lows) became more marked for large stocks. Nevertheless, overall, small stocks responded more significantly to the trading ranges than large stocks. That’s because the increased volume is more prominent the longer it’s been since the stock price last achieved its price extreme.
Meanwhile, the smaller the company, the higher the individual investor interest in the stock relative to its normal trading volume. That’s because individual investors are often interested in small stocks with the speculative goal of making outsized returns. This leads investors to take bigger positions than usual. Therefore, ambiguity regarding the stock’s true valuation increases.
52-Week High/Low price reversals
When a stock hits or passes its 52-week high during the day but closes below its opening price, it may have topped out. Thus, its price may not trend much higher in the near term.
Technical traders use indicators such as a ‘shooting star,’ which is a bearish candlestick pattern, to determine whether this is likely or not.
Professional investors often use 52-week highs as a way of setting take-profit orders to lock in gains. Conversely, they sometimes use 52-week lows to set stop-loss levels to limit losses.
Naturally, a 52-week high represents bullish sentiment in the market, while a 52-week low is bearish.
Achieving new 52-week price highs often results in stocks pulling back or reversing trend as institutional profit-taking takes hold.
Meanwhile, a technical indicator called a ‘hammer candlestick’ is sometimes used to determine a bottom in the market.
This could signify a bottom when a stock hits a 52-week low intraday but doesn’t achieve a new 52-week low at the close. A ‘hammer candlestick’ sometimes triggers short-sellers to cover their positions by taking long positions in the stock. In contrast, value investors may rush to buy the dip.
A stock making five consecutive daily 52-week lows is inclined to enjoy a strong bounce when it forms a daily ‘hammer candlestick’.
Example of a 52-Week High/Low
Consider a stock with a 52-week high of $90 and a 52-week low of $65.
In this instance, $90 is the resistance level, while $65 is the support level.
Thus, technical traders are likely to start selling the stock when it reaches the resistance level and buying at support.
If the price breach at either a 52-week high or low is convincing, traders are likely to begin taking new long or short positions.
Where’s the Value?
- The 52-week high/low price of a security is the highest and lowest price it has traded during the past 365 days. It is considered an important technical indicator.
- The 52-week high/low is founded on the daily closing price.
- An intraday trading breach of the 52-week high/low can help determine a stock’s viable entry or exit point.
- A 52-week high represents a resistance level, and a 52-week low represents a support level. These are indicators used by traders to prompt trading decisions.