Thread by @gary_norden

52 Week High - Thread

A new study into 52 week highs again demolishes the technical analysis explanation about that 'level'

In t/a, the 52 week high is seen as an important 'level'
Most if not all t/a supporters view the 52wh as a major resistance level
They claim it is psychologically important
They say contracts may trade through the 52wh in which case it is bullish
Or it may reverse and be bearish

The 52wh gives them a set of rules to trade by which they say are based on market psychology

My own view is that this is bullshit
We need to make decisions on what is happening now
A trade even a high or low from the past was made under different circumstances and context
It is wrong to use that now
These 'levels' are just short cuts

While I can expect t/a traders to be trading around those 'levels' and may factor that into my thinking in some markets
It is important to bear in mind that the large majority of t/a traders lose money

In my first book Technical Analysis and the Active Trader I gathered dozens of studies into t/a and couldn't find anything to support t/a claims

In Dec last year a new study by Zhu, Sun, Stivers, Zhang of various Universities again looked at 52wh
They tested the 52wh on hundreds of stocks from 1967-2015

They found considerable evidence of momentum for these stocks
They found that stocks near 52wh showed far LOWER rates of reversal than stocks trading far away from 52wh

If 52wh really was a 'resistance' level we should have seen signs of this
In fact it was the opposite - there was more evidence of resistance (reversal) from stocks trading far away from 52wh
Stocks near 52wh "rarely" reversed

Again, this is NOT what should happen if the 52wh really was a major resistance level
We should see signs of resistance

T/a supporters could argue that the rule 'buy on a break of 52wh' works
But it works DESPITE the t/a philosophy NOT because of it
The 52wh was never a resistance level in the first place

The study looked at 52wh because it is actively used by traders
But what about 53wh or 51wh?
If the 52wh is just BS, it is no more relevant then any other time-frame
These other areas have not been tested as thoroughly but might show greater use - IF we were to think that way

Given the evidence of momentum, should you just go and buy contracts near the 52wh?
I'll leave that up to you!
But I'm not a fan of generalised rules like that and I will always want to investigate current context

These 'levels' such as 52wh are subjective filters that traders use to create short-cut style trading rules
Those who push them claim they are based on psychology but there is no evidence of that

T/a tells us that traders who sold last time at 52wh will be back
During my time trading for banks and in the pits I saw NO evidence that the big traders who traded last time at the 52wh 'level' would necessarily be back this time. The last trade there could have been months ago

My view is to forget about these levels and trade what you see now
Work out a r/r based on the current market conditions NOT based on something that may have happened weeks or months ago
Again - trade the NOW!