Short-term and medium-term traders in the stock market need to look at various metrics to understand the historical price movement of a security. One such metric is the 52-week high, which is updated on a real-time basis online. You may have seen this information changing on your stock trading app or platform.
If you have been wondering what this value is and why it matters, this article can help clarify such details. Read on to find out what the high over the last 52 weeks means and understand its significance for traders.
What is the meaning of the 52-week high
As demand and supply forces interact, the prices of most stocks and securities tend to change and fluctuate each day. The 52-week high is simply the highest price that a stock or security has reached over the past 52 weeks. Here, the term ‘52 weeks’ means the previous year. So, this price is essentially the highest a stock or security has attained over the past year.
Like the 52-week high, stocks and securities also have a 52-week low, which is the lowest price at which the security was traded over the last 52 weeks.
Understanding the 52-week high for a security
Now that you know the meaning of the 52-week high, let us explore the concept further. The 52-week high is not based on the prices that the stock attains during the trading day. Only the closing prices are taken into account. This means that the price may surpass the 52-week high intraday, but it may fall back down by the time the market closes.
For example, say a stock’s 52-week high is Rs. 450. Today, the stock hit an intraday high of Rs. 480, but it closed at a lower point — at Rs. 440. This means that although the stock crossed the 52-week high mark intraday, it closed below the previous 52-week high of Rs. 450. So, the 52-week high remains unchanged. A new 52-week high will only be recorded if the stock closes at a price above Rs. 450.
Since the 52-week high is the upper limit of a security’s closing price, it represents the resistance level for the security. When a stock attains a new 52-week high, the trading volume typically increases because traders view it as an optimistic and bullish indicator. That said, you should not look into the 52-week high as a standalone metric. This data must be read with the 52-week low to get the full picture of a stock’s historical support and resistance levels.
Calculating the percentage off the 52-week high or low
The 52-week high and low data can be used to calculate the range that a stock or security is trading in. This is what the percentage off the 52-week high or low indicates. To compute this, you simply calculate how much lower than its 52-week high (or higher than its 52-week low) a security is currently trading at.
For example, consider the following data for a stock:
- Current stock price: Rs. 100
- 52-week high: Rs. 140
- 52-week low: Rs. 85
Using this data, you can calculate the percentage off the 52-week high as shown below.
Percentage off the 52-week high:
= [(Difference between the 52-week high and the current stock price) ÷ 52-week high] x 100
= [(Rs. 140 — Rs. 100) ÷ Rs. 140] x 100
= [Rs. 40 ÷ Rs. 140] x 100
= 28.57%
This means that the stock is currently trading 28.57% below its 52-week high. Similarly, the percentage off the 52-week low can be calculated as shown below.
Percentage off the 52-week low:
= [(Difference between the current stock price and the 52-week low) ÷ 52-week low] x 100
= [(Rs. 100 — Rs. 85) ÷ Rs. 85] x 100
= [Rs. 15 ÷ Rs. 85] x 100
= 17.64%
This means that the stock is currently trading 17.64% above its 52-week low. So, the percentage off the 52-week high and low essentially tells you about the range in which a security is currently trading in the market. This may be at the bottom, middle or top of the spectrum between the 52-week high and low.
Why the 52-week high matters for a security
Although it may seem like a straightforward data point, the 52-week high is a technical indicator that can be invaluable to traders who are planning to enter or exit the market. Understanding the meaning of the 52-week high and its significance can help you improve your trades and make smart decisions about entering or exiting the market.
Here is how the 52-week high can be important for traders.
- Technical analysis: You can use the 52-week high as a technical indicator to understand the resistance level for any security. If the price breaks out of this level, it may signal a bullish phase and draw in more buyers.
- Momentum indicator: The 52-week high can also act as a momentum indicator. Stocks that hit new 52-week highs consistently may have a strong upward momentum that you can capitalise on.
- Risk management: You can also use the 52-week high to determine entry or exit points for your trade. Based on how a stock’s price behaves when it nears the 52-week high, you can decide whether to sell or buy it.
- Comparison of securities: The 52-week high also facilitates easy comparison of securities. Based on metrics like the percentage off the 52-week high, you can identify the stocks that are closer to breaking the previous high and consider trading in them.
- Psychological significance: Above all, the 52-week high is a strong driver of investor sentiment in the market. When a stock approaches its previous high, traders may be more inclined to buy it expecting an upward momentum.
Conclusion
The bottom line is that the 52-week high is an important technical indicator for short-term and medium-term traders. If you are trading in any market segment, ensure you keep an eye on this metric and read it alongside other indicators like the 52-week low and the percentage off the 52-week high and low. This will help you make an informed decision about buying, holding, or selling a security.
