When we look at the technical charts for trading equities in the stock market, the 52-week high/low levels are regarded to be key resistance/support levels. The 52-week high/low represents the stock's highest and lowest price in the previous 52 weeks. These figures are based on the daily closing share price. But, keep in mind that they do not represent intraday highs or lows that may be attained during a trading session.

Traders utilise 52-week high/low levels for a variety of purposes, including determining how volatile the stock has been in the previous year or whether the share is moving in one way or the other.

What Is 52 Week High And Low?

Traders utilise these levels as a technical indicator to forecast a stock's present value and future price movement. Traders frequently get more interested in a share when its price is towards the high or low end of its 52-week price range. In general, the range lies between the 52-week low and the 52-week high. These levels are based on the stock's daily closing price.

A stock may exceed a 52-week high intraday, but it may end up ending below the prior 52-week high, thus going unnoticed. This also happens when a share makes a new 52-week low intraday but misses to close below it.

Example Of 52-Week High/Low

In a year, suppose stock XYZ trades at a high of ₹100 and a low of ₹75. Hence its 52-week high and low prices are ₹100 and ₹75, respectively. Generally, ₹100 is seen as a resistance level, whereas ₹75 is regarded as a support level. This suggests that traders will start selling the stock when it hits that level and will start buying it when it reaches 75. If it does break either end of the range, traders will open fresh long or short bets, based on whether the 52-week high or 52-week low was exceeded.

How Does 52 Week High And Low Work?

As described below, the 52-week high/low helps us determine whether the current trend will continue or reverse:

• Trend Continuation

When a new 52-week high or low is hit, or the stock breaks out from these levels, other traders opt to buy or sell. When a stock price passes the 52-week high or low, one should additionally consider the number of shares traded. Trading volume often increases when the stock goes beyond a high or low point, and then decreases.

Momentum investors, in particular, pay close attention to 52-week high/low levels. They predict that the recent winners and losers in the stock market will continue to be winners and losers in the short future. This is referred to as "relative strength investing."

• Reversal

When the stock price reaches and closes around its 52-week high, traders anticipate the price to fall in the future since the 52-week high is considered a resistance level. As a result, many traders book gains, believing that prices would reverse from the resistance level.

This also applies to a 52-week low, when traders anticipate it to be a support level and climb. Trading reversals can be a profitable approach. Other technical indicators and volume data should also be used by traders. Other technical indications, such as the descending wedge and the rounding bottom, may be used to forecast reversal patterns. If the reversal does not occur, a stop-loss order should be placed to limit the loss. Many traders, however, prefer to wait and watch for a trend reversal before entering.

Wrapping Up

Whether you are a momentum investor or not, looking at a stock's 52-week high and low prices can be informative. If you want to spread out your assets for a more diverse portfolio, you may always open a Demat accountand start with stock trading first. The secret is to start small and gain experience until you are confident enough to invest huge sums and understand how the market operates. You might also look into any upcoming IPO investments since this is becoming a popular investing avenue.