High-Low Index
What is the High-Low Index?
The high-low index compares stocks that are arriving at their 52-week highs with stocks that are hitting their 52-week lows. The high-low index is utilized by investors and traders to affirm the overarching market trend of a broad market index, like the Standard and Poor's 500 index (S&P 500).
Grasping the High-Low Index
The high-low index is just a 10-day moving average of the record high percent indicator, what partitions new highs by new highs plus new lows. The record high percent indicator is calculated as follows:
Investors believe the high-low index to be bullish assuming that it is positive and rising, and bearish assuming it is negative and falling. Since the index can be unstable on an everyday basis, market experts generally apply a moving average on the data to streamline the daily swings. This produces more dependable signals.
Deciphering the High-Low Index
A high-low index over 50 means a bigger number of stocks are arriving at 52-week highs than arriving at 52 lows. On the other hand, a perusing below 50 shows that more stocks are making 52-week lows compared to stocks making 52-week highs. Hence, investors and traders are generally bullish when the index transcends 50 and bearish when it declines below 50. Regularly, readings over 70 show that the market is trending higher, while a perusing below 30 recommends that the market is in a downtrend. Investors ought to likewise know that If the market is trending unequivocally, the high-low index can give extreme readings for a prolonged period.
Trading with the High-Low Index
Numerous traders add a 20-day moving average to the high-low index and use it as a signal line to enter a trade. The index creates a buy signal when it crosses over its moving average, and a sell signal when it crosses below its moving average. Traders ought to filter the signals created by the high-low index with other technical indicators. For instance, a trader could require the relative strength index (RSI) to be over zero when the index crosses over its 20-day moving average to affirm up momentum.
The high-low index can likewise be utilized to form a bullish or bearish bias. For example, in the event that the indicator is over 50, a trader might choose to just trade on the long side of the market.
