Definition and Examples of 52-Week High/Low Price
The 52-week high/low price is the highest and lowest price of a stock over the past 52 weeks. The highest and lowest closing prices of the stock during the 52 weeks indicate the highest closing price and the lowest closing price of the stock over the past 52 weeks. The stock price may reach a higher or lower price during intraday trading, but only the closing prices are reflected in the 52-week high/low numbers. Investors can use the 52-week high/low numbers to determine whether the stocks are trending one way or another, which is an important element in a momentum investment strategy. For some investors, a stock that reaches a 52-week high or low price is a signal to buy or sell the stock.
How 52-Week High/Low Works
How to use 52-week high/low information depends on your investment style. You might look at the difference between Tesla’s highest and lowest closing prices and determine that it is more volatile than the stocks you like to invest in. Or you may conclude that the gap indicates the stock has room for further growth. Other investors choose to buy or sell when a new 52-week high or low price is reached. A study in 2008 revealed that the volume of stocks bought or sold increases during the weeks when the stock price exceeds either the highest or lowest price for the 52 weeks. The study noted that trading increases when the stock moves above or below the highest or lowest points, and then it retraces. Among those who pay special attention to 52-week high/low markers are momentum investors. This strategy assumes that last year’s winners and losers in the stock market will remain winners and losers in the near term. This strategy is also known as “relative strength investing.” Momentum investors who use 52-week high/low prices believe that there are factors driving the stock above or below its 52-week range, and those factors will continue to push the price in that direction. Since they can’t monitor stock market movements constantly, momentum investors often place a sell order to sell a stock if the price drops enough or a buy order to initiate a purchase if it reaches a target price.
What It Means for Individual Investors
As noted in a research paper published by Clifford Asness and his team at a fund management company, investing based on 52-week high/low prices has some legitimate historical context, although past performance is not a guarantee of future returns. “Momentum is a well-established empirical fact,” Asness wrote. “It shows the excess return in 212 years of U.S. stock data.” Asness and his team also clarified that the performance gap between stocks that had relatively high returns last year and those with relatively low returns last year was 6.3% in favor of the stronger-performing stocks. This gap increases to 8.3% when expanding the time frame to between 1927 and 2013. Whether you are a strong believer in investing based on 52-week high/low prices or not, reviewing the highest and lowest stock prices over 52 weeks can provide you with useful information.
Source: https://www.thebalancemoney.com/what-is-52-week-high-low-5196751
Leave a Reply