52 Week High Trading Strategy
Are you looking for a new ideas about finding a trade? There are a number of different strategies revolving around stocks reaching a 52 week high.
Today we want to discuss one that is worth taking a look at. Keep in mind we are not saying this strategy will work every time or should be implemented without taking into account the security being traded and the overall market conditions. Other factors such as volume when the security is making its 52 week high should also be considered.
All that being said, we just wanted to introduce you to an idea of how to find a trade based on a 52 week high.
First of all, as the name implies the security should be making a new 52 week high before you look at entering the trade.
Once you find a security making its 52 week high, you need to wait for it to pull back off the high to increase your chances of a successful trade. Yes, you might miss a sudden momentum move to the upside but your chances of finding a successful trade are much better if you wait for a pull back. Sort of wait for the stock pull back and relieve some of the momentum. It will also allow the security to find new buyers to help it move back up.
Finding the right spot to enter the trade can be a little bit of an art, I typically look at the candle sticks or the price breaking the trend line back up after the pull back. Fibonacci levels can also be used to determine the pull back before a move up.
Why does this trade make sense?
First of all there are typically underlying reasons a stock is making a new high, We don’t care about those since we are technical traders. We only care that it is happening.
Second, once you break to new highs there is no resistance to the upside. There is no technical way to know how much it will go up. There is not obvious selling pressure downward.
Third, waiting for the pull back off the high increases your odds of success and takes advantage of the sellers who decided to profit take at the high. I would not be surprised if many of them are buying back after the pullback.
Fourth, once it breaks the 52 week high the second time (especially if it is an all time high) who knows how much it will go up. We would want to do some profit taking after it breaks through because you can bet others will be doing the same.
Let us know if you like these types of trading ideas in the comments below and we will continue to provide them.