Why is 52 week range important

Traders often visualize price actions through bars and bar charts. Unless otherwise specified, the period is commonly daily; however, traders incorporate multiple periods when reviewing the price action of a security. This is called multiple timeframe analysis. For example, a stock could be in a daily uptrend with a series of higher highs and higher lows, but be in a weekly downtrend with a string of lower highs and lower lows.

With coffee in hand, we browse through the stock market section of the morning newspaper. We locate our favorite stock, but see there is more than just one price next to it.

Open means the price at which a stock started trading when the opening bell rang. It can be the same as where the stock closed the night before, but not always. Close refers to the price of an individual stock when the stock exchange closed shop for the day.

It represents the last buy-sell order executed between two traders. In many cases, this occurs in the final seconds of the trading day. For less actively traded stocks, the last trade of the day could be well before the closing bell, depending on when the last buy and sell orders were last paired. The high is the highest price at which a stock traded during a period. The low is the lowest price of the period. Range defines the difference between the highest and lowest prices traded for a defined period, such as a day, month, or year.

The range is marked on charts, for a single trading period, as the high and low points on a candlestick or bar. Technical analysts closely follow ranges since they are useful in pinpointing entry and exit points for trades. Investors and traders may also refer to a range of several trading periods, as a price range or trading range.

Securities that trade within a definable range may be influenced by many market participants attempting to exercise range-bound trading strategies. A range for an individual trading period is the highest and lowest prices traded within that trading period. For multiple periods, the trading range is measured by the highest and lowest prices over a predetermined time frame.

The relative difference between the high and the low, whether on an individual candlestick or over many of them, defines the historical volatility of the prices. The amount of volatility can vary from one asset to another, and from one security to another. Investors prefer lower volatility, so prices becoming significantly more volatile are said to indicate turmoil of some kind in the market.

The range depends on the type of security; and for a stock, the sector in which it operates. For example, the range for fixed-income instruments is much tighter than that for commodities and equities, which are more volatile in price.

Even for fixed-income instruments, a Treasury bond or government security typically has a smaller trading range than a junk bond or convertible security. Macroeconomic factors such as the economic cycle and interest rates have a significant bearing on the price of securities over lengthy time periods. A recession, for instance, can dramatically widen the price range for most equities as they plunge in price.

For example, most technology stocks had wide price ranges between to , as they soared to lofty levels in the first half of that period and then slumped—many to single-digit prices—in the aftermath of the dotcom bust. Stock ranges have narrowed significantly since the Great Recession as volatility has reduced during a nine-year bull market.

A conservative investor prefers securities with smaller price fluctuations compared to securities that are susceptible to significant gyrations. Such an investor may prefer to invest in more stable sectors like utilities, healthcare, and telecommunications, rather than in more cyclical or high- beta sectors like financials, technology, and commodities.

Generally speaking, high-beta sectors may have wider ranges than low-beta sectors. A security's trading range can effectively highlight support and resistance levels. If the stock breaks below that level especially on heavy volume , traders interpret it as a bearish signal.

Conversely, a breakout above a price that has marked the top of the range on numerous occasions is considered as a breach of resistance and provides a bullish signal. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors.

An investor may show increased interest in a particular stock as its price nears either the high or the low end of its week price range the range that exists between the week low and the week high.

Often, a stock may actually breach a week high intraday, but end up closing below the previous week high, thereby going unrecognized. The same applies when a stock makes a new week low during a trading session but fails to close at a new week low. For example, stock traders may buy a stock when the price exceeds its week high, or sell when the price falls below its week low. The rationale behind this strategy is that if a price breaks out from its week range either above or below that range , there must be some factor that generated enough momentum to continue the price movement in the same direction.

When using this strategy, an investor may utilize stop-orders to initiate new positions or add on to existing positions.

It is not uncommon for the volume of trading of a given stock to spike once it crosses a week barrier. In fact, research has demonstrated this. Correspondingly, large stocks produced gains of 0. Over time, however, the effect of week highs and lows became more pronounced for large stocks. On an overall basis, however, these trading ranges had more of an effect on small stocks as opposed to large stocks. A stock that reaches a week high intraday, but closes negative on the same day, may have topped out.

This means that its price may not go much higher in the near term.