If you have seen the term HOD in relation to the stock market, you may have wondered what it means and how it is used by traders, analysts and investors. You may be considering day trading and need to understand the different terms and what they represent.
As day trading is short term investing (see also ‘Which Is An Example Of A Short Term Investment?‘), the fluctuations and movements in stock prices give them the information and signals to either enter or exit a trade. The high of day plays an important role in this strategy.
What Is High Of Day?
The term high of day or HOD is assigned to a security’s highest price during trading hours on any given day. It is defined as the highest point on a stock chart and provides investors and traders with information on a stock’s price and even future performance.
This information includes what is affecting the price of the stock on that particular day. It also demonstrates the best possible entry point into the stock, the best exit out of it, and insight into the outlook for that particular stock.
The high of day is displayed beside the current price, as well as the intraday’s low price. Intraday refers to regular business hours during which trading takes place. The high of day is especially useful for traders to indicate when to put on or off trades.
A HOD is used to calculate moving averages, which is an integral part of technical analysis. It can also indicate what affected the stock price, driving it up, and what other causes contributed to that movement.
High Of Day & Day Trading
Day trading is exactly what it sounds like, it is the practice of trading financial instruments within the same trading day. While these are typically investment firm employees or bankers, there are also now a lot of online day traders since the advent of electronic trading.
High of day is closely linked to day trading. Day traders use a variety of strategies in the course of trading. Scalping (see also ‘How To Scalp Stocks‘) is when traders try to profit from minor price increases. This can result in them executing between ten and one hundred trades per day.
This is based on the assumption that smaller movements in stock prices are more easily detected than larger ones. The accumulative effect of lots of small gains is a larger one, but a proper exit strategy is key to prevent big losses.
Another day trading strategy is news-based, which is exactly what it sounds like. It uses volatility around news events in order to create trading opportunities. The advantage of day trading is that stocks are not affected by overnight events or news.
Understanding High Of Day
The high of day is the highest price that the stock reached over the course of the trading day, and is usually higher than the closing price and often equal to the stock’s opening price. It can be used to calculate a moving average.
A moving average helps investors and markets analysts to track price fluctuations in individual stocks and securities. It removes all the short term highs and there are several types of moving averages depending on the time period and calculations used.
Another benefit of the high of day is for technical analysts to use it along with the low of day to identify sudden upward or downward movement in a stock price when there has been no trading in between.
This indication of a gap alongside other signals in the market such as shifts in trading volume can help analysts develop signals to buy or sell individual stocks. High of day is an important part of a candlestick chart, which traders use to evaluate stock price movements.
How To Find HOD On A Stock Chart
Stock prices are represented by a line graph, and you can identify the HOD by finding the highest point on the chart for any given day. This indicates the highest point that the stock reached during intraday trading.
Using candlestick charts help traders to make decisions based on the patterns that they identify, allowing them to predict the short term direction of a stock price. The candlestick chart shows four price points, the opening and closing price and the high and low.
The candlestick comprises a wick at the top which represents the high of day in relation to the opening price of the stock and another at the bottom which shows the difference between the low of day and closing price.
In between the wicks is the real body of the candlestick, which illustrates the range between the opening and closing price of the stock.
What Is The Opposite Of High Of Day?
Unsurprisingly, the opposite of high of day is low of day. This is the lowest price that a stock or security falls to during intraday trading. It can be found on a stock chart as the lowest point on the graph. Low of day is often written as LOD.
Using the high of day and low of day, investors can track patterns in the hope of making a profit from short term prices movements. The low of day can also be used to assess a stock’s value or to predict trends.
Low of day like high of day can be affected by the mood of the market and other outside influences. The LOD with the HOD can be used to identify gaps in the stock’s pricing and can generate signals to buy or sell.
High of day is just one of the components that day traders (see also ‘Why Do Day Traders Fail?‘), market analysts and investors use to track stock prices and trends.
However, it is a vital component and used in conjunction with low of day and opening and closing prices can identify jumps in pricing without any trading in between.
Combining this information with other signals and market sentiment can indicate buy and sell signals for a particular stock. Strategies such as this rely on information such as HOD to succeed.