There can be many Indispensable tool, utility, initiative or resource while trading for a particular person :- -------
- Volume
- Moving average
- Social cause
- News
- Charts
- Trading Tips
- And many others, list continues....
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As in for me also there are many Points but the one thing that attracts me is ---- "52 Day Week & High".
Several people here say it doesn't help or is insignificant, but they haven't investigated this indicator fully.
No number in a stock table is a complete story in itself.
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"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. Like me 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.
A popular strategy used by stock traders is to buy when price exceeds its 52-week high, or to sell when 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 will be enough momentum to continue the price move in a favourable direction.
Alternatively, another strategy is to sell when price reaches its 52-week high on the assumption that price will recede, or to buy when price reaches its 52-week low in anticipation of a value play. Traders and investors typically conduct additional technical and/or fundamental analysis for confirmation.
High:-
Share prices are obviously rising as the stock heads toward its annual highs. However, some investors become nervous that the 52-week high represents a high-risk price level since share prices have not exceeded this level in a year, and sometimes longer. This psychological barrier or resistance prevents many investors from opening positions or adding to existing positions, while encouraging others to sell some or all of their existing shares.
It is an interesting dynamic since a rise in the stock price probably reflects good news. Perhaps sales are up, profit is increasing, or the future earnings prospects are bullish. Yet, despite this news, the powerful mental barrier of the 52-week high keeps prices compressed – at least for a while.
But generally, if the news is good and the fundamentals are strong, these factors eventually prevail and the stock breaks past the 52-week high. Once it breaks through, share volume will vastly increase and the coiled stock typically makes a jump in excess of average market gains.
Here the research of a data analysis company :-
- Small stocks crossing their 52-week highs produce 0.6275% excess gains in the following week
- Large stocks crossing their 52-week highs produce 0.1795% excess gains in the following week
- Small stocks crossing their 52-week highs produce 1.8963% excess gains in the following month
- Large stocks crossing their 52-week highs produce 0.7035% excess gains in the following month.
After doing some research, I found out that the great majority of stocks that retrace away from the 52 week price high or low, but come back to break the 52 week price high or low tend to continue moving in the same direction about 65 percent of the time.
What does this mean to you ? simply if you wait for the market to bounce away from the 52 week price high or low and give it another chance to break out, the odds of your trade continuing in that direction is very high.
Final Word:-
The 52 Week Range: Make sure the stock is trading closer to the 52 week low than the high and also has upward momentum.
"Traders' reluctance to revise their priors is price-level dependent. The greatest reluctance is at price levels nearest and farthest from the stock's 52-week high. At prices that are neither near nor far from the 52-week high, priors adjust more quickly and there is no pronounced predictability when information arrives".
Whether you prefer to trade based on the 52-week high effect or not, the anomaly is real. The excess gains from this effect are most pronounced over very short periods of time, and the largest profits are made on thinly traded stocks with little coverage (i.e. small and micro- cap stocks).
Regardless of whether you choose to trade this phenomenon or not, the 52-week high has transformed itself into an important anchoring point in the minds of many investors, and has significant effects over share prices.
Here is what I understood from this strategy/tool/resource :-
“52 Week Strategy”
One thing I observed over the years is markets tend to get volatile when they approach and break through the 52 week high/low price point.
The reason for this volatility is because the 1 year high/low area is the centre of focus for many traders including professional hedge funds and mutual funds who put a lot of weight into the 52 week high/low price.
The Basis For The Set Up
A while back before the time when everyone had access to the Internet and traders were a bit less sophisticated, the 52 week high/low point was known as a breakout point where markets broke out and continued moving in the same direction with continued momentum.
With time as more traders caught on to this method to buy as well as sell near the 52 week high/low price, markets began demonstrating more and more false breakouts near this price level. As a result the 52 week high/low began losing all credibility as having any type of edge that could benefit traders or increase their odds of winning.
Different Way To Trade 52 Week High/Low
After several years of monitoring how markets behave near the 52 week high/low price levels, professional traders realized more often than not markets hit the 52 week high/low area and pulled back before once again approaching the area and breaking out with strong momentum the second time around.
To take advantage of this price action, I created a great day trading strategy that uses the 52 week high/low price points without subjecting me to the draw downs and pullbacks that occur near these price levels.
Find Markets That Touch Their 52 Week Price High/Low Level
You want to start by finding Stocks, Futures or Forex markets that are touching the 52 week high/low price level. You want to find markets that are not edging slowly towards the 52 week level but are gravitating towards that level with increased volatility and momentum.
The more volatility and momentum you notice near these levels at least initially the better. In this example you will notice how the stock approaches the 52 week level like a magnet. You should also make sure the markets you pick have sufficient volatility under normal trading conditions; therefore you should pick your markets carefully.
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This Stock Really Wants To Hit The 52 Week High Level
Monitor Market After False Breakout
Once the market hits the 52 week high/low level you should see an instant pullback away from that price range. The market should then take anywhere from 1 to 3 weeks to consolidate and try again the second time to break through the 52 week price high/low level.
In this example the stock quickly pulls back and consolidates for about 2 weeks before trying once again to reach for the 52 week high level.
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The Stock Pulls Back And Consolidates For Two Weeks
Monitor Entry Levels
As you monitor the market daily notice and keep track of the high that was made the day the market made the 52 week high/low price initially. Your job will be to enter an entry stop order each day that initial 52 week high/low price.
You only want to enter the order for the first hour of the trading day. The breakout that should follow should be very powerful and tends to occur near the opening bell. I rarely see breakouts that occur late in the day that have sufficient momentum to make the trade worthwhile. If you are not filled during the first hour of the trading day you should cancel your order ASAP.
You can see in this example how the stock gaps up and doesn’t turn back down. The volatility should be similar to what you saw during the first time the breakout occurred.
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The Stock Rallies About After The Second Breakout
Intra-day View Of The 52 Week Pop Strategy
In this example you can see the entire trade progression from beginning to end. The entry occurs $0.25 higher than the 52 week price high. In this case the gap occurred at the opening bell and we were filled substantially higher.
This is not something you should be too concerned with because usually momentum coming from gaps near the 52 week high levels tends to follow through similar to this example.
Once you are filled you need to place your stop loss order below the low that was made the day prior to your entry.
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The 15 Minute Bar Charts Works With Stocks
52 Week Low Example
In this example you can see how the stock makes the initial 52 week low. This is when we begin monitoring the stock for the next 1 to 3 weeks to see if it pulls back up and goes for another try to break through the 52 week low level. I suggest you trade to the downside just as often as you trade to the upside.
The momentum is typically stronger and quicker to the downside as opposed to the upside the majority of the time.
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We Begin Monitoring The Stock Once It Makes The Initial 52 Week Price Low
In this example the stock only pulled back for 6 days. The pullback is usually quicker to the downside as well. Notice how the breakdown below the 52 week low was volatile and once again started with a small gap. The gap is not a necessity but you will see it often when trading this strategy. The second breakout below the 52 week low tends to carry strong momentum.
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The Stock Gaps Down And Continues Moving Down Till The End Of The Day
The Entire Sequence Intraday Chart
You can see the entire sequence of the trade to the downside. In this example I use two different stocks but the 52 Week Pop Strategy works just as well with Commodities, Futures and Currencies. I’ve been trading this strategy using Precious Metals and Currencies for over a decade with consistent results.
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The Stock Closes Near The Low Of The Day
Things To Keep In Mind
When trading the 52 Week Pop you should use 15 minute bar charts the day you intend to enter the market when trading stocks. For other markets I tend to use 5 minute bar charts but stocks respond well to 15 minute time frame. I always use the daily chart to isolate the pattern and make sure that it’s setting up correctly. Once the set up is correct and my order is entered I switch to the shorter time frame to make sure the pattern is developing accordingly.
My stop loss is placed a few cents below the low prior to your entry day breakout day. The market should never go back to this level if the trade is working out as planned. Also keep in mind that you should never enter the trade after the first hour of the day.
This method thrives on momentum so if the market doesn’t start out that way in the morning the odds are it won’t begin during the trading day. Lastly, make sure you keep the trade open till the end of the day to give yourself the highest odds of achieving maximum profit potential.
And in the End Wordings are :-
“ You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right-and that’s the only thing that makes you right.”
