What Are 52-Week Highs and Lows?
Stocks (and other tradable securities) change value constantly as a result of supply and demand, but when they approach certain prices, investors and analysts pay particularly close attention. Two of these important price levels are the 52-week high and the 52-week low.
A stock’s 52-week high is the highest price it has closed at over the last year. Similarly, its 52-week low is the lowest price it has closed at within the last year. Together, these two prices act like upper and lower bookends that define the price range within which a stock has traded over the course of a year (also known as its 52-week range).
52-week highs and lows are considered technical indicators—in other words, they are more important to traders who make decisions based on technical analysis than they are to buy-and-hold investors who engage in fundamental analysis.
Why Are 52-Week Highs and Lows Important?
Many traders make buy and sell decisions about stocks they own or are interested in when they approach or hit existing 52-week highs/lows (or when they establish new ones). This often results in higher-than-usual trading volume for the stock in question.
Additionally, a stock’s 52-week low and high often represent important support and resistance levels. In the short term, stocks tend to trade within their established support and resistance levels, so when they break out (breach a support or resistance level), investors pay attention, and trading volume often increases.
When Does a 52-Week High/Low Indicate a Reversal?
If a stock exceeds its 52-week high during the early hours of a trading session but falls back down below it and closes near its open price, it forms what is known as a “hanging man” candlestick on its candlestick chart. In technical analysis, a hanging man pattern at the end of an upward price trend often signifies that a stock has reached its short-term peak and is prime for a reversal. For this reason, traders holding the stock may decide to sell and take their profits, driving the stock’s price down as they do so.
Similarly, if a stock exceeds its 52-week low during the early hours of a trading session but goes back up and closes near its open price, it forms what is known as a “hammer” candlestick on its candlestick chart. In technical analysis, a hammer candlestick pattern at the end of a downward price trend often signifies that a stock has reached its short-term bottom and is prime for a reversal. For this reason, traders interested in the stock may decide to buy shares at this price, driving its price up with increased demand.
What Does It Mean When a Stock Exceeds Its 52-Week High or Low?
If a stock actually closes above its 52-week high (rather than breaching it intraday then falling back into its 52-week range at close), traders may view the breakout as the beginning of a new rally and buy shares. If a rally does ensue, the stock’s previous 52-week high often becomes a new support level.
Similarly, if a stock closes below its 52-week low (rather than breaching it intraday before rising back into its 52-week range at market close), traders my view the breakout as the beginning of a new bearish tumble for the stock and sell shares to avoid additional losses. If the stock does tumble lower, the previous 52-week low often becomes a new resistance level.
Should You Make Trading Decisions Based on the 52-Week Range?
To some traders and technical analysts, 52-week highs and lows can be extremely important indicators, while for buy-and-hold value investors interested only in fundamental analysis, these metrics may hold less weight. Many investors fall somewhere in the middle of this spectrum. The more active your investment style (and the shorter your time horizon), the more closely you may want to follow technical indicators like 52-week highs and lows.