High-Low Index: Definition, Formula, and How to Use It

What it is

The High-Low Index measures market breadth by comparing the number of stocks making 52-week highs to those making 52-week lows. It helps confirm the prevailing trend of a broad market index: rising readings suggest broad participation in an uptrend, falling readings indicate widening weakness.

How it’s calculated

1. Calculate the Record High Percent:
   Record High Percent = (New Highs / (New Highs + New Lows)) × 100
2. Smooth the daily Record High Percent by taking a moving average (commonly a 10-day moving average). That smoothed value is the High-Low Index.

Some traders additionally use a 20-day moving average of the index as a signal line.

Interpretation

• Above 50: More stocks are making 52-week highs than lows — generally bullish.
• Below 50: More stocks are making 52-week lows than highs — generally bearish.
• Above ~70: Broad, strong uptrend (extreme bullish reading).
• Below ~30: Broad, strong downtrend (extreme bearish reading).

Because daily readings can be volatile, the moving average smooths short-term swings and yields more reliable signals. In strong trends the index can stay in extreme ranges for extended periods.

Trading signals and uses

• Trend confirmation: Use the index to confirm whether price moves are supported by broad participation. A rising index during market advances supports the uptrend; divergence (index falling while market rises) can warn of weakening breadth.
• Moving-average crossovers: Traders often use the index crossing above its 20-day MA as a buy signal and crossing below as a sell signal.
• Bias setting: Many traders restrict positions to the long side when the index is above 50 and prefer short or defensive positions when it’s below 50.
• Signal filtering: Combine the High-Low Index with other indicators (e.g., RSI, volume, sector breadth) to reduce false signals.

Example (simple)

If on a given day there are 300 new highs and 100 new lows:
Record High Percent = (300 / (300 + 100)) × 100 = 75%
If the 10-day moving average of recent Record High Percent values is, say, 68, the High-Low Index shows broad bullish participation (well above 50).

Limitations and practical tips

• Sector concentration: A few large sectors can drive index readings without broad market strength.
• Survivorship and listing changes: Changes in stock listings can affect counts over time.
• False signals: Like all indicators, it produces false positives—confirm with price action and other indicators.
• Timeframe choice: Shorter smoothing periods react faster but are noisier; longer periods are smoother but lag signals.

Key takeaways

• The High-Low Index is a breadth indicator showing the balance of 52-week highs vs. lows, typically presented as a smoothed (10-day) percentage.
• Readings above 50 are generally bullish, below 50 bearish; extremes (above ~70 or below ~30) indicate strong trends.
• Use it to confirm market moves, set bias, and generate signals—always in combination with other technical tools to improve reliability.