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A 52-Week High is a psychological level, support, resistance all in 1

Qualities and importance of 52-week high price level

Price action traders must look at 52-week highs because:

  • They are very recognisable, very significant support and resistance levels.
  • They are watched by analysts, professional traders and even reported by news-wires.
  • They are easy to program, perfect for alert, filtering purposes.

 

52-week high as resistance support level

  • 52-week highs are very easy to recognise because there can be only one each year.
  • In an uptrend, a 52-week high is used as a conservative take-profit level for traders who have winning position.
  • Bears who think that new highs are no longer possible use it as a best level to sell since its the highest price (to sell high buy low).
  • The more times price visits the same level, the stronger resistance it becomes but the more likely there is a big move if it is penetrated.
  • Breaking a 52-week high is considered a trending action and one expects it will continue with high probability.
  • Former 52-week highs that have been penetrated become support because traders who failed to enter previously want to buy here whereas sellers who have made money on price retracement back to these levels want to exit their shorts.
52-week high

Equities that break 52-high are likely to continue trending

 

In the above example using weekly chart of DAX30, we can see

  1. That 52-week highs are very easy to spot. On MT4, press CTRL-Y combination to turn on period separator. At the weekly chart, the period separator function places vertical lines at the end of each year and the start of the next one. The 52-week high is the highest traded price in between.
  2. At Point 1, Weeks 49 – 51 show price action reacting to 2011 high. This demonstrates its value as resistance. Conservative traders who bought DAX at any time before are likely taking profit here if they bet that the resistance will not be broken.
  3. At Point 2, we can see that DAX30 established a 52-week high in the last week of 2012. Come 2013, the former resistance of 2011 high became support. This happened again at Point 3.
  4. At Point 4, we see that price action continued to trend higher. Therefore, retracement also brought support higher to 2012 high i.e. the 52-week high of the previous year.
  5. Point 5 shows us a dramatic bull trap action of price making a new 2014 high but failing below its 2013 counterpart. As a resistance, the 2013 52-week high is the boss.
  6. For DAX30 to continue any uptrend movement, it has to systematically test and clear the former highs, both now serving their part as resistance.
52-week high works with forex

Former 52-week high becomes support for EURUSD

 

Window to market psychology, good as alert

Since 52-week highs are very recognisable because there is only one every year, it is easy to look out for (note that levels can reprint for current year until the year is over but cannot reprint for past years). This quality makes it easy to spot, incorporate into trading. In fact it is also easy to program indicators or apps inside trading platforms or into other software to detect, filter equities at this level as well as to alert traders.

This screen grab from NASDAQ picks out stocks at 52-week high and its sibling 52-week low.

NASDAQ screengrab

52-week highs so highly watched its got its on page on the exchange

As a window to market psychology, 52-week high is easy to read. Here is a 4-point mantra:

  1. Stock, indices and forex pairs that are at 52-week high are strong (if they are weak, find them at low, not here).
  2. Since they are strong, expect them to continue to be strong (best time to ride the trend).
  3. Do not short 52-week high simply because your gut tells you to.
  4. Short only if you are convinced that there is a reversal chart pattern and/or price fails to penetrate after multiple tries. See post ‘Bearish Hang Seng Index loses 52-week high, meets multiple confluence‘.

 

52-week high phenomenon has a sibling called the 52-week low that explains the psychology of price weakness.

 

UPDATE 19 MARCH 2014 – USDHKD recoils at former 52-week high bonus chart

USDHKD

Former 52-week proves to be formidable resistance for USDHKD

 

UPDATE 12 MAY 2014 – Straits Times Index turned by former levels

This chart of the Straits Times Index STI shows how former 52-week highs and lows continue to play a part as support resistance levels. Red arrow show former levels while orange labels show evidence of price action/reaction.

Straits Times Index

STI price action shows clear reaction to former levels

 

Strategies 52-week highs and lows:

  1. Sell test-restest showing resistance at former 52-week highs
  2. Fade bull traps i.e. failed upward-breakouts, followed by retest (resisted) of former 52-week highs
  3. Buy test retest showing support at former 52-week lows
  4. Fade bear traps i.e. failed downward-breakouts, followed by retest (supported) of former 52-week lows

Trend line breaks and failures were discussed in this story ‘Ttrend line break and its implications‘. Also discussed before, false breaks are phenomenon whose existence are taken for granted and it is valid to say that there little incentive to play a break out but every incentive to fade one.

For stock market traders and investors in Singapore, the good news is sharesinv.com provides information on 52-week highs and lows if you do not have a chart.

52-week high and low screener

Available from Sharesinv.com

Lastly here is a chart of Yanlord (Singapore Exchange listed stock) showing ‘smoking guns’. Each rally into former 52-week highs were faded and turned out very effective trigger for sellers.

Sellers fade Yanlord 52-week high

Fading into these rallies were winners

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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One thought on “A 52-Week High is a psychological level, support, resistance all in 1”

  1. Shao Guoyong says:

    Very well written and detailed blow-by-blow account of DAX30 price action.
    I guess this article must have taken quite some time.

    Indeed 52 weeks high n low are the go-to SAR for me.
    I had positive experiences with them, esp. when they confluence with big fib levels ( 5 or 6),
    many a times they became the level which chart patterns subsequently ‘grew’ on.
    So in all, boxes can be a great stand-alone trading system for naked traders:
    – find SAR
    – identify impulse moves
    – simplify chart patterns
    – determine good 1234s
    – observe fractals of price action.

    there is a use for boxes in each timeframe.

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