New Highs- New Lows is a simple indicator that tracks the highs and lows of a stock depending on a number of days. In other words, if the stock has formed a new high, or new low in the last n days, then it may be considered bullish, or bearish respectively.
A number for setting n is about 52 days, in other words, if there is a new high, or new low that it occurred today from the last 52 values, then it is a reason of buying and selling the stock.
Another way to do this indicator, is to first form the MA of price data, let' s say the 10 day MA and then we use the MA to see if it has done new highs, or new lows with respect to the data within the last 52 days. This way some inconsistencies and randomness that may exist in daily prices, it is smoothed out by the MA.
What we can deduce is that there is correlation between new highs that the market is bullish and that new lows respectively correspond to slightly bearish market. Backtesting this indicator, someone can create the denominations of Very Bearish, Bearish, Slightly bearish, Slightly bullish, Bullish, very Bullish with respect to the values of this indicator, i.e. the gain, or loss of the backtest. The results though may not be consistent enough to time the market with purchases, or sales of stocks. Most consistent results were those of Slightly bearish and Slightly Bullish, i.e. this indicator was able to keep track in the best way the Slightly Bearish and Slightly Bullish associations.
In general, this indicator is complicated and uses statistical techniques to compare the various values of gain, or loss that it had. Novice traders may want to view other more straight forward indicators rather than depend on this indicator for buying and selling. It can only be used as a sentiment indicator, rather than a market- timing indicator, i.e. when to buy and sell.
The conclusion of this indicator is that very high new highs are considered slightly bullish, while very low new lows can be considered as slightly bearish.
A number for setting n is about 52 days, in other words, if there is a new high, or new low that it occurred today from the last 52 values, then it is a reason of buying and selling the stock.
Another way to do this indicator, is to first form the MA of price data, let' s say the 10 day MA and then we use the MA to see if it has done new highs, or new lows with respect to the data within the last 52 days. This way some inconsistencies and randomness that may exist in daily prices, it is smoothed out by the MA.
What we can deduce is that there is correlation between new highs that the market is bullish and that new lows respectively correspond to slightly bearish market. Backtesting this indicator, someone can create the denominations of Very Bearish, Bearish, Slightly bearish, Slightly bullish, Bullish, very Bullish with respect to the values of this indicator, i.e. the gain, or loss of the backtest. The results though may not be consistent enough to time the market with purchases, or sales of stocks. Most consistent results were those of Slightly bearish and Slightly Bullish, i.e. this indicator was able to keep track in the best way the Slightly Bearish and Slightly Bullish associations.
In general, this indicator is complicated and uses statistical techniques to compare the various values of gain, or loss that it had. Novice traders may want to view other more straight forward indicators rather than depend on this indicator for buying and selling. It can only be used as a sentiment indicator, rather than a market- timing indicator, i.e. when to buy and sell.
The conclusion of this indicator is that very high new highs are considered slightly bullish, while very low new lows can be considered as slightly bearish.
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