High Minus Low¶

Definition¶

The High Minus Low (HML) is a simple technical analysis tool that calculates the difference between the highest and lowest prices of an asset over a specified period. It is primarily used to measure market volatility, as the range between the high and low can indicate how much the price of an asset fluctuates within a given period.

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History¶

The High Minus Low has been used for decades as a straightforward method to measure price volatility. Though not attributed to a specific individual, the concept of calculating the range between high and low prices has long been a core element of technical analysis. It is commonly used by traders in conjunction with other indicators to gauge market conditions and assess potential entry or exit points.

Calculations¶

The calculation for the High Minus Low is straightforward. This value is calculated for each period (daily, weekly, etc.) and represents the price range within that period.

\[ HML_t = { Round\ (High_t - Low_t, Precision) } \]

\(High_t\) – the high price of the current period \(t\)

\(Low_t\) – the low price of the current period \(t\)

\(Precision\) – the decimal precision based on the symbol settings

Interpretation¶

• Rising values – indicates increasing market volatility, which can signal the potential for significant price movements. This often suggests that the market may be preparing for a breakout or heightened activity.

• Breakouts – a sharp increase in the HML values can indicate that the market may be moving towards a breakout phase, which can present trading opportunities.

• Reversal points – consistently high readings followed by a sudden drop may suggest that the current trend is losing momentum, potentially indicating an upcoming reversal.

• Shift – by adjusting the shift parameter to alter the alignment of the HML indicator with price data on the chart, you can explore how the HML readings correspond to past or future price movements.

Application¶

• Buy signal – traders might consider entering a buy position if the HML shows rising values alongside other bullish signals, as this can suggest increased volatility with upward potential.

• Sell signal – a sell position may be considered when the indicator shows consistently high values followed by a decrease, signalling a potential shift in momentum and the possibility of a downtrend.

• Stop-loss placement – use the HML range to set stop-loss orders just outside the recent high or low, allowing for protection against unexpected price swings during volatile periods.

Limitations¶

The High Minus Low does not provide any directional insight into price movement. It only measures the volatility range. The indicator may produce false signals during periods of erratic price movement without an actual trend.

Summary¶

The High Minus Low measures the price range between the highest and lowest values over a given period, providing insight into market volatility. Larger values indicate greater price fluctuations, while smaller values suggest lower volatility or consolidation. As simple as the concept may be, it remains an integral part of technical analysis used by many traders and professionals.