Highs Lows Ratio Overview
The newest highs plateau ratio measures the variety of securities trading over the New York Stock Exchange (NYSE) which can be hitting on a 52-week high or 52-week low.
The index performs this calculation such as shares, preferred shares, closed-end capital, and ETFs.
Traders and investors used the newest highs plateau ratio index to judge store opinion.
The higher the amount of shares attaining a brand new 52-week high, the more the bullish sentiment. The alternative holds true when shares have been hitting on 52-week lows.
The index is the most famous for its capacity to provide a hint in the topping and bottoming procedure.
For instance, once the store is making new highs, however, you will find fewer shares moving on the store – some thing is away.
The participation from the movement the more the probability of a correction that is pending.
The challenging job similar to everything else in gambling will probably soon be time consuming the correction.
From the Perspective of a Day Trader
As a busy trader, divergence from the wide store Isn’t your chief concern.
You are probably going in trades to get a couple moments to hours. For that reason, a impending sell-off from the extensive store isn’t your concern.
For swing traders, the brand new high/low ratio is now well worth a glimpse at the start of each trading week.
How to Calculate the New High New Low Indicator
You Can See the brand new highs plateau index to a weekly basis on many fiscal Sites. Below are a number of general recommendations:
- The store is favorable once the NH/NL ratio is trending towards the up side. Ex: 400 brand new drops to 4-5 brand new highs
- A drawback NH/NL ratio usually means that the store is trending towards the disadvantage. Ex: 40 brand new highs to 350 brand new highs
- The store is screaming or has been separation in the event the NH/NL ratio is . Ex: 400 brand new highs along with 400 new highs
The movie underneath shows the weekly quantity of new highs and new highs across different niches, released by Barrons (go to get ).
Barrons’ Weekly new highs and lows indicator (source)
As an example, the above data for the week ending 23rd February 2017 shows 403 Nasdaq shares making a new 52-week high against 36 Nasdaq shares making a 52-week low. The NH/NL ratio, in this case, happens to be 11.19.
Applying this to the Nasdaq composite index you can see that the ratio of highs and lows coincide with the high in the index, thus implying the marketplaces are rallying withbroad participation.
Nasdaq Composite index (23-02 Closing)
Different Names – Same Indicator
The new highs and new lows indicator go by different names, depending on your charting platform. You will also notice certain platforms applying various configurations, but these all essentially obtain you to the equal place.
For example, stockcharts.com calls the new highs lows indicator as the High-Low index.
The high low index is a version of the indicator which uses a 10-day average of the record high percent.
You calculate the record high percent by dividing the number of shares making a 52-week high by the sum of all shares making a 52-week high and a 52-week low.
For example, if you look back at the previous data for Nasdaq, (403 NH and 36 NL), then the record high percent is 403/(403 36) which is 0.917 or 91.7%.
The chart underneath shows the S&P500 asset chart with the SPX HI-LO indicator. The indicator shows extremes, which coincide with the peaks and troughs in the index.
SPX Stock Chart with the SPX Hi-Low indicator (Source – Stockcharts.com)
Strategies to use the new highs lows ratio
Here are three ways traders can use the new high new low indicator.
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1. Timing the Markets
50 NH/NL Reading 10-Period Simple Moving Average
Because the indicator tracks the components of the exchange, it is best used on an index like the Nasdaq or S&P 500.
By tracking an index you can invest in the broad store by purchasing an ETF or futures contract.
You can use a sign of 50 on the new high new low indicator in combination with a cross above the 10-period simple moving average.
The chart underneath shows the SPX applied with the 10-day simple moving average with the new high new low indicator. In the region marked, you can see that the indicator is above 50, and this is later confirmed by amount trading above the 10-day moving average.
Timing the store with the New High New Low Indicator
It is up to the trader from here on as to whether they want to hold their position or book benefits quickly.
In this technique, the focus is not to confirm whether the store high is validated by the number of shares making new 52-week highs but to use the 50-level in the oscillator to see which way the store is biased.
A reading medially 50 and 75 is a fairly good indicator that the store sentiment is bullish and thus traders can purchase into the rally. The bullish bias is even stronger when other indicators such as moving averages validate the move.
2. Buying Channel Breakouts
The Donchian channel indicator makes for a great addition that compliments the new high new low indicator.
The chart underneath shows the 20-period Donchian Channel applied as an overlay on the chart with the new high new low indicator.
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Donchian Channel with New High New Low Indicator
With the Donchian channel technique, the trading rules are simple.
Buy when amount breaks out above the 20-period high and the new high new low indicator is above 90. You can, of course, configure this value to fit your trading style.
The blue arrows show potential levels where you would have been long.
Once the new highs lows ratio is above 90, in this example and amount breaks above the 20-period Donchian channel, you can place a long position and hold until the new high new low indicator dips underneath 90.
The before all else section shows a long position from around 2180 on November 21. The position was held until we got an exit trigger at 2240 around December 27, thus giving a 40 point move.
Following, the red arrow shows the area where you would have remained on the sidelines as there was no breakout in the Donchian channel at the time the new high/new low indicator was above 90 or vice versa.
The more recent signal came around 12th or 13th of February with a long position at 2310 with the long position still held while the S&P500 is at 2363.81.
3. Divergence and moving average confirmation
The new highs lows ratio can also be used as a divergence indicator to spot any discrepancies while also applying as a confirmation for a bullish moving average crossover.
The next chart underneath shows the divergence as the Dow Jones Index falls to make a new low, but the new high new low indicator shows a higher low.
This is later followed up by the bullish moving average crossover and validated by the new high new low indicator above 50 and rising.
New high new low indicator as a bullish confirmation indicator
As you have heard in the above strategies, there are many different uses with the new highs lows ratio. As a day trader, you don’t must obsess the movement of this index.
Regardless of that approach you property on, you need to return and examine the signs. You will discover hints to assist navigate the present store doubt.