52-Week Highs Are On Everyone’s Trading Radar - dummies

52-Week Highs Are On Everyone’s Trading Radar

By Barry Burns

The highest and lowest prices that a market has traded in the previous 52 weeks are extremely popular support/resistance levels watched by traders and investors. These price levels are viewed as significant because they represent new territory that the market hasn’t seen for an entire year.

Most investors and traders consider it a bullish signal if a stock breaks its 52-week high, and this is the most common strategy using these support/resistance levels.

Like most things in trading, there are always the contrarians. These traders look to trade a failure of the more traditional signal that breaking a 52-week high is a bullish signal.

Another approach is to buy off the 52-week low. This is a value trader’s approach based on the idea that the stock hasn’t been so inexpensive for a year and must, therefore, be a good deal. The problem is that stocks are often priced low because the companies behind the stocks are having significant problems.

Both strategies — buying the breakout of the support/resistance levels or fading the breakout — can be successful. The simple fact that the stock reaches a 52-week high or low doesn’t provide enough information to determine whether the stock will break those levels or bounce off them.

Be sure to do additional research, especially with regard to the momentum of the move at the 52-week high/low and also the fundamentals of the company. It is wise, though, to market those levels on your charts because the majority of market participants watch them, and you can expect significant reaction at those levels in one direction or the other.