A 52-week high/low shows the highest and the lowest price at which a security has traded during the preceding year.
It is used as a technical indicator by traders and investors who consider the 52-week high/low as an important aspect in deciding a stock's current value and predicting the future movement of its price.
As a stock is trading within its 52-week range, some investors may reflect increased interest as the stock price nears either the high point or the low point of the range.
The 52-week high/low figure is often used to help determine a point for entry or exit for a given security. To give an example, traders may purchase a stock when its price crosses its 52-week high, or sell when its price falls below its 52-week low.
The reason behind this strategy is that if the stock price exceeds the 52-week high or falls below 52-week low, then the trend has enough momentum to continue in the same direction.
The 52-week high or low is established on the daily close price for securities or indices.
A lot of the times, a security may actually cross a 52-week high intraday, but end up with a close price below the preceding 52-week high, and going unnoticed. The same goes for, when a stock creates a new 52-week low, but fails to create a close at a new 52-week low, going unnoticed. However, in such situations, the stock’s inability to reach a new closing 52-week high/low can be of high importance.
A security that is able to create a 52-week high on a particular day but closes with a fall in the price on the same day, then its price may not experience a rise in the near future.
A lot of times, 52-week highs are used by traders as a profit stop levels to and book profits.
Though 52-week highs suggest a bullish sentiment, there are also some traders who are ready to give up some further price improvements in order to book some or all of their gains.
Stocks that are creating new 52-week highs, often end up being the most capable of profit taking, leading to pullbacks and trend reversals.