DEFINITION of 'High-Low Index'

The high-low index compares stocks that are reaching their 52-week highs with stocks that are hitting their 52-week lows. The high-low index is used by investors and traders to confirm the prevailing market trend of a broad market index, such as the Standard and Poor’s 500 index (S&P 500).

Example of the High-Low Indicator

Image depicting an example of the high-low index.

BREAKING DOWN 'High-Low Index'

The high-low index is simply a 10-day moving average of the record high percent indicator, which divides new highs by new highs plus new lows. The record high percent indicator is calculated as follows:

Record High Percent = [New Highs / (New Highs + New Lows)] x 100.

Investors consider the high-low index to be bullish if it is positive and rising, and bearish if it is negative and falling. Since the index can be volatile on a day-to-day basis, market technicians generally apply a moving average on the data to smooth out the daily swings. This helps generate more reliable signals.

Interpreting the High-Low Index

A high-low index above 50 means more stocks are reaching 52-week highs than reaching 52 lows. Conversely, a reading below 50 shows that more stocks are making 52-week lows compared to stocks making 52-week highs. Therefore, investors and traders are generally bullish when the index rises above 50 and bearish when it declines below 50. Typically, readings above 70 indicate that the market is trending higher, while a reading below 30 suggests that the market is in a downtrend. Investors should also be aware that If the market is trending strongly, the high-low index can give extreme readings for a prolonged period.

Trading with the High-Low Index

Many traders add a 20-day moving average to the high-low index and use it as a signal line to enter a trade. The index generates a buy signal when it crosses above its moving average, and a sell signal when it crosses below its moving average. Traders should filter the signals generated by the high-low index with other technical indicators. For example, a trader might require the relative strength index (RSI) to be above zero when the index crosses above its 20-day moving average to confirm upward momentum.

The high-low index can also be used to form a bullish or bearish bias. For instance, if the indicator is above 50, a trader may decide to trade on the long side of the market only. (For further reading, see: Using Technical Indicators to Develop Trading Strategies.)

  1. 52-Week High/Low

    The 52-week high/low is the highest and lowest price that a stock ...
  2. Norton High/Low Indicator

    The Norton High/Low Indicator leverages the Demand Index and ...
  3. High-Low Method

    In cost accounting, the high-low method is a way of attempting ...
  4. Market Sentiment

    Market sentiment reflects the overall attitude or tone of investors ...
  5. Confirmation

    Confirmation refers to the use of an additional indicator or ...
  6. True Strength Index - TSI

    The true strength index is a technical momentum indicator that ...
Related Articles
  1. Trading

    Using index futures to predict the future

    Want to know whether the stock market will open up or down? Learn about index futures and how they can help predict how the market will trade.
  2. Trading

    Using Technical Indicators to Develop Trading Strategies

    There is no perfect investment strategy that will guarantee success, but you can find indicators and strategies that will work best for your position.
  3. Trading

    A logical method of stop placement

    Explore several approaches to determining stop-order placement in forex trading that will help you swallow your pride and keep your portfolio afloat.
  4. Investing

    The Hidden Flaws of Index Investing

    Index investing isn't always better than active investing. Here's why.
  5. Trading

    Overbought Or Oversold? Using The RSI To Find Out

    The Relative Strength Index is a technical indicator that measures the velocity and magnitude of changes in a stock’s price.
  6. Investing

    3 Index Funds with the Lowest Expense Ratios

    Learn about index mutual funds with the lowest expense ratios.
  1. What is the difference between Stochastic Oscillator and Stochastic Momentum Index?

    Discover how the stochastic oscillator and the Stochastic Momentum Index differ and why the latter is considered a more refined ... Read Answer >>
  2. What's the Percentage off the 52-Week High or Low?

    The "percentage off the 52-week high or low" refers to when a security's current price is relative to where it has traded ... Read Answer >>
  3. Is it Possible to Invest in an Index?

    While you cannot buy indexes, which are just benchmarks, we'll show you three ways for you to mirror their performance. Read Answer >>
  4. How can I find out if a company I like is included in an index?

    Learn how to find out what indexes include a company's stock. Determine the importance of predicting future price movement ... Read Answer >>
  5. What is index option trading and how does it work?

    Learn about stock index options, including differences between single stock options and index options, and understand different ... Read Answer >>
Trading Center