What Is Norton High/Low Indicator
The Norton High/Low Indicator leverages the Demand Index and stochastics to identify potential price reversals. It is an oscillator that indicates when the price is potentially near a bottom or top. The indicator is not widely-available on charting platforms.
- The Norton High/Low is a combination of the Demand Index and stochastics.
- When the NHP line moves above three, it indicates the potential for a top in the next four to six periods.
- When the NLP lines move below minus three, it indicates the potential for a price bottom in the next four to six periods.
Understanding the Norton High/Low Indicator
The Norton High/Low Indicator leverages the Demand Index and stochastics to identify potential price reversals. The Demand Index is a complex oscillator that combines price and volume to provide traders with a leading indicator, while stochastics are commonly used as a momentum indicator to assess the strength of a trend. The combination of these two methods aims to gauge both direction and momentum.
The Norton High/Low Indicator generates a high line (NHP) and a low line (NLP) that traders observe for movements above and below critical levels as well as crossovers that could indicate a change in the prevailing trend. In general, an NLP line that crosses below minus three is a sign that a new bottom will occur over the next four to six periods, in the same manner, an NHP line crossing below minus three signals that a new top may be forming over the same timeframe.
Once a signal has occurred, traders may opt to wait for confirmation from the price before taking action. For example, when the NLP drops below minus three, a trader could wait for the price and the NLP to both start moving up again before making a purchase in the underlying asset. Some traders believe the indicator works better on weekly and monthly price bar charts, rather than short-term charts.
Traders should use the Norton High/Low indicator in conjunction with other technical indicators and chart patterns to maximize their odds of success. For example, many traders will look at ancillary momentum oscillators or seek out reversal patterns on the price chart as a sign that a reversal is likely to occur in the near-term.
Difference Between the Norton High/Low Indicator and the Moving Average Convergence Divergence (MACD)
The moving average convergence divergence (MACD) is measuring the distance between two moving averages which are based on price. The Norton indicator is measuring price and volume movements as well as providing overbought and oversold readings. The MACD doesn't provide overbought or oversold readings, but it does provide clues as to the direction and strength of the price trend.
Limitations of Using the Norton High/Low Indicator
The indicator is not widely-used and therefore isn't available on most charting and trading platforms.
The indicator doesn't always correctly signal a bottom or top, which is why other confirming indicators or analyses are required. A bottoming signal could occur, but the price could continue falling for an extended period of time, for example. Price reversals may occur without the indicator reaching three for a top or minus three for a bottom.