Why New Price Highs Are Bullish
A core trend following principle is to go long when price makes a new high, based on the time frame of the strategy. The system can use any period breakout, but common time frames are breakouts to new 10 day, 20 day , 55 day, 100 day or new 52 week highs. This signal is very easy to program into the most basic of scanners. New 52 week highs are often listed on most finance websites, newspapers, etc.
The concept is simple, a time period price breakout will catch any potential move early on. In order for a $10 stock to become a $20 stock, it has to clear $11, $12, $13 etc. on its way to $20. You get the idea. I use the new 52 week high strategy as one of my core programs, because when price makes a new 52 week high, it indicates some underlying strength that has pushed prices above recent levels. Breakouts indicate bullish price action, and allows one to trade with the money flow. Breakouts can and will often fail, which is why strict stop losses are employed to preserve capital. Common stop loss techniques include average true range, (ATR), or a fixed percentage below the entry price or a trailing moving average. I use volatility based stops with Average True Range.
One constant fact is that all big winners over time, Apple, Boeing, Google, JP Morgan, Netflix, Nvidia, or any of hundreds of big winners have constantly made new 52 week highs along the way. When a stock goes from $10 to $100, it has to constantly make new highs to get there. This is the beauty and simplicity of trading new 52 week highs.
I use new 52 week highs to get into potential big winners as they break out above recent levels and follow a disciplined strategy of letting stop losses cut the losers early and let the winners run for the duration of the move. I may scale some profits along the at based on momentum signals, but the core position will remain long to reach its full potential. A few big winners can make your year or more. I follow price breakouts for big potential profits.