When performing technical analysis the "Higher High" is a very common and fantastic indicator that investors seek out. It is commonly found during bull markets and is also used a buy signal.
A Higher High is seen when a stock finds technical resistance, retracts in price from this temporary high point over one to several weeks, then successfully moves back up and closes above its previous high.
What are the best conditions for a successful Higher High?
- The market is primarily in an uptrend.
- The stock is in a "hot" Industry Group (for example JASO's run below was during the big Alternative Energy craze that helped these stocks add massive gains for most of the 2007 year).
- Volume increases above the average at the time of breakout to Higher Highs.
The time to buy is right at the moment the stock trades above the resistance area (examples below). For instance if we draw our resistance line at $100 the correct time to buy is at $100.10 which can be completed via limit order automatically. The time to sell is if the stock falls back below the correct buypoint by 2 - 5%.
Take a look at the chart below for a very simplistic view of JA Solar Holdings (JASO) back in 2007 after it had its initial public offering (IPO). The stock ran from $7 all the way to a peak of $25.50 before reversing downwards.
BLUE #1 - #6 are all examples of High Highs that successfully formed for JASO stock. During this run the market was in a nice uptrend and Alternative Energy stocks were red hot. Momentum is always critical for successful investing.
RED #1 - #3 shows where JASO first failed to make Higher Highs then proceeded to form two consecutive Lower Lows. The opposite of Higher Highs, Lower Lows are bearish and can signal the end of an uptrend.
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