Why do stocks hit their 52-week high/low? What does it indicate?

If you ever look for a particular stock's performance in the last one year, the lowest price that the stock hits is called the 52-week low, while the highest price the stock hits is called the 52-week high. But instead of investing because the stock prices have crossed their 52-week prices, gather data on why stock prices have moved so, before investing in them.

How are they decided? The 52-week prices are based on the daily closing prices of the security, which means that even if stock prices go higher or lower during a trading session than the 52-week prices and then recover, the 52-week prices will not change. 

Where do I find these prices? 

For a particular stock: If you look for any stock and see the price chart, you can see about 7-10 details in the bottom right corner below the price chart which indicates necessary figures related to that particular stock. For eg: in the case of Tata Steel, the 52-week high and low price is Rs 147.6 and Rs 82.70 respectively.

For the stock market: Since thousands of companies are listed on the stock market, many companies reach new 52-week highs and lows every day. You can find a detailed report on each company's 52-week high and low prices on the NSE or BSE websites. (Go to NSE's old website>   Quick Links > All Reports > 52-week High Low Report)

Why are these prices relevant?

• When a stock hits both these price points, it gathers interest and attention from traders. Short-term traders like intraday traders usually watch both price points to decide if they should buy or sell the stock at that point.
• When stocks close at around or below the 52-week low price, it usually indicates a downward trend in the stock whereas when stocks hit and go beyond the 52-week high price, it usually indicates an upward trend in the stock.
• It has been noticed by stock traders that if you are bullish on a stock and you invest in stocks that are crossing their 52-week high prices, the probability of making returns is much better than investing in stocks that are touching their 52-week low prices. 
• Many traders consider the 52-week low price as a 'support price' and follow the strategy of buying stocks at this lowest price and then waiting for some time for the prices to rise. Similarly, these traders consider the 52-week high price as a resistance level and begin to sell their stocks once they reach that level. 

When should you buy stocks? When it hits a 52-week high or 52-week low?  

Many stock market enthusiasts think that you should buy a stock when it is very cheap and sell it when its price is very high. But many factors affect such price fluctuations and any stock decisions should be only taken after understanding the reason behind such stock movement. When stock prices fall and cross a 52-week low, this means that either the stock is temporarily down or something is fundamentally wrong with the stock since many people have sold it.

When stock prices move up, it can be due to the momentary impact of particular news or can be due to organic changes in the company. It can also be that a stock is overpriced because of which prices are more than the actual value of the stock. 

So it is always recommended to research the why behind the stock price movements before actually investing based on them.