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 Range

    The 52-week range shows the lowest and highest price at which ...
  2. Indexing

    In the financial markets, indexing can be used as a statistical ...
  3. Stochastic Oscillator

    A stochastic oscillator is a technical momentum indicator that ...
  4. True Strength Index - TSI

    The true strength index is a technical momentum indicator that ...
  5. Index

    An index measures the performance of a basket of securities intended ...
  6. Buy Signal

    A buy signal is an event or condition that alerts a person to ...
Related Articles
  1. Insurance

    7 Stocks That Could Surprise in 2016

    Here are seven stocks that could be good additions to your portfolio in 2016.
  2. Trading

    Market Breadth: A Directory Of Internal Indicators

    Discover the indicators that measure the force of the bulls and bears, telling you what a simple price chart cannot.
  3. 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.
  4. Investing

    5 Things You Need To Know About Index Funds

    Index funds, at their best, offer a low-cost way for investors to track popular stock and bond market indexes. But not all index funds are created equally.
  5. Insights

    This Bull Market Is Supported by the Index Funds Investment

    The massive growth of index funds has been supporting the bull market and could lead to a steeper correction when it happens.
  6. 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.
  7. Investing

    3 Index Funds with the Lowest Expense Ratios

    Read detailed information about index mutual funds with some of the lowest expense ratios in their categories, and learn about their pros and cons.
  8. Trading

    How to Use a Moving Average to Buy Stocks

    The moving average (MA) is a simple technical analysis tool that smooths out price data by creating a constantly updated average price.
  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. How Do I Find Mutual Funds That Track Indexes?

    Two good sources for finding index funds are Fidelity Investments and Vanguard. Read Answer >>
  3. 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 >>
  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 >>
Trading Center