The High-Low indicator defines the lowest and the highest price in a specific timeframe. If the indicator is positive and rising, it’s a bullish signal. And, if it is negative and falling, it’s a bearish signal. The High-Low indicator can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.
What is the High-Low indicator?
The High-Low indicator helps traders in finding the highest and the lowest price on a predetermined timeframe. With this, the indicator can help confirm the prevailing trend. Also, the highs and low are often the support and resistance levels.
The indicator calculates a 10-day moving average of the record high percentage. Then, it divides new highs by new highs plus new lows. The final calculation is:
Record High Percentage = New Highs / New Highs + New Lows x 100
Traders use moving averages along with the High-Low to try and observe signals in line with the overall trend.
The chart above marks the highest and the lowest point in a given timeframe. The red line signifies the lowest points, while the green line symbolizes the highest points.
One of the advantages of the High-Low indicator is that it predicts highs and lows automatically. Looking at these points manually can be time-consuming. By finding highs and lows, traders can easily draw entry and exit points.
Some traders confuse the High-Low indicator with the Hi-lo oscillator. The Hi-lo oscillator is a part of the Gann series, which describes highs and lows of previous periods.
A disadvantage of the High-Low indicator is that it may not be able to spot the most important high and low values as a trained human eye may be able to.
How to use the High-Low indicator?
The High-Low indicator can be used with price action strategies. Traders spot high and lows and execute trades based on the analysis.
The High-Low indicator can also be used alongside technical and fundemental market analysis as further confirmation.
It’s essential to note that traders often use the High-Low indicator on the daily charts. This way, when traders move to smaller timeframes like 1 hour or 30 minutes, the High-Low displays exact entry and exit points. The High-Low can be applied on longer-timeframes in conjunction with the 20-day moving averages. When applied individually, the High-Low indicator can produce false signals.
One of these price-action strategies include if the price of a currency pair moves past the previous day’s highs or lows, the pair will continue to move in the breakout direction. This way the indicator can be used as a breakout trading strategy. On the other hand, the High-Low indicator levels may act support and resistance, in which instance price could reverse. This way the indicator can be used as a reversal trading strategy.
In forex, on each timeframe, support and resistance levels represent the highest highs and the lowest lows of a given timeframe. When the price moves past the support and resistance levels, there is a chance of a breakout. With the high-Low indicator’s help, traders could look to buy at the lowest current value and sell it at the highest present value.
High-Low indicator trading strategy
As mentioned above, the High-Low indicator can be used on any timeframe. On shorter timeframes, things can happen in mere milliseconds. Traders may look to implement forex scalping or day-trading strategies.
On forex charts, the highest highs and the lowest lows are already present in support and resistance levels. With the help of the High-Low indicator, traders can get an extra filter for their trading strategy.
High-Low indicator buy strategy
- Locate the lowest point on the chart.
- Wait for the price bar to go bullish before entering.
- Enter the trade above the lowest point.
- Place a stop-loss near the recent low.
- Exit the trade when the high point is approaching.
High-Low indicator sell strategy
- Find out the highest point on the chart.
- Wait for the price bar to go bearish before entering.
- Enter the trade below the highest point.
- Place a stop-loss near the recent high.
- Exit the trade when the price is nearing the low point.
High-Low indicator conclusion
The high-low is a technical indicator for finding the highest and the lowest point on a given timeframe. With the observance of highs and lows, a trader can try to anticipate potential entry and exit points into the market.
I would prefer to use the majority of technical indicatorrs such as the High-Low indicator on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.
The High-Low indicator is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.
Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.
The methods of implementing the High-Low indicator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.
Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.
If you would like to practice trading with the High-Low indicator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.