What is the High-Low Index?
The high-low index compares equities at 52-week highs and lows. Investors and traders use the high-low index, such as the S&P 500 index, to corroborate market trends.
Knowing the High-Low Index
The high-low index is a 10-day moving average of the record high percent indicator, the ratio of new highs to new highs plus new lows. Calculating the record high percent:
Record High Percent={New Highs/(New Highs+New Lows)}×100
The high-low index is considered bullish when optimistic and rising and bearish when negative and declining. Since the index is volatile daily, market experts use a moving average to smooth out spikes. This enhances signal reliability.
Understanding
A high-low index above 50 indicates more equities attaining 52-week highs than lows. Conversely, a number below 50 indicates more equities making 52-week lows than highs. Thus, investors and traders are optimistic when the index climbs over 50 and bearish when it falls below 50. Average values above 70 indicate a positive market trend, while values below 30 indicate a negative trend. In a strong market trend, the high-low index might show severe readings for a lengthy time.
Trade the High-Low Index
Traders often utilize a 20-day moving average to identify a trade entry on the index. The index signals a buy when it crosses above its moving average and a sell when it goes below. Traders should filter high-low index signals using other technical indicators. To confirm rising momentum, traders may utilize the relative strength index (RSI) above zero when it exceeds its 20-day moving average.
The high-low index can also indicate a bullish or bearish bias. Traders may trade exclusively long if the indicator is over 50.
