What is a '52-Week High/Low'

A 52-week high/low is the highest and lowest price that a stock has traded at during the previous year. Many traders and investors view the 52-week high or low as an important factor in determining a stock's current value and predicting future price movement. As a stock trades within its 52-week price range (the range that exists between the 52-week low and the 52-week high), investors may show increased interest as price nears either the high or the low.

BREAKING DOWN '52-Week High/Low'

A popular strategy used by stock traders is to buy a stock when the price exceeds its 52-week high or to sell when the price falls below its 52-week low. The rationale behind this strategy is that if price breaks out from the 52-week range (either above or below), there is enough momentum to continue the price move in a favorable direction.

The 52-week high/low is based on the daily closing price for stocks and indexes. Often times, a stock may actually breach a 52-week high intra-day but end up closing below the previous 52-week high, thereby going unrecognized. The same applies when a stock makes a new 52-week low during a trading session but fails to close at a new 52-week low, going unrecognized. The cliché "If a tree falls in the woods and no one hears it, did it really fall?" applies. However, in these cases, the failure to make a new closing 52-week high/low can be very significant.

Intra-Day 52-Week High Reversals

A stock that makes a 52-week high intra-day but closes negative on the day may have topped out. Often times, professionals and institutions use 52-week highs as profit stop levels to lock in gains. Although 52-week highs represent bullish sentiment, there are also plenty of investors that are ready to lock in some or all of their gains. Stocks making new 52-week highs are often the most susceptible ones to see profit taking, resulting in pullbacks and trend reversals.

Intra-Day 52-Week Low Reversals

When a stock makes a new 52-week low intra-day but fails to make a new closing 52-week low, it may be a sign of a bottom. This can be determined if it forms a daily hammer candlestick. This can trigger short-sellers to start buying to cover their positions while bargain hunters come off the fence. Stocks that make five consecutive daily 52-week lows are most susceptible to seeing strong bounces when a daily hammer forms. These are a common filter for stock scanners.

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