ATH stands for “all-time high” the highest price a particular asset, stock, or index has reached on the open market. In this article, we’ll focus on individual stocks.
When a stock hits the highest-ever price for a single asset, it has reached its ATH. Whether that’s a fleeting moment during a wild bull market or the start of a solid upward trend can be harder to determine.
What Does ATH Say About Stock Performance?
We’ve answered “what is ATH,” but what does it mean to you? That depends on your trading strategy. Seeking out stocks at or around their ATH should never be your complete plan.
If you’re seeking a quick buck, you can always sell off a stock that’s on a big rally. But if you’re looking for a more long-term strategy, you need to learn what it means.
The ATH Cycle
The cycle of an all-time high starts with the price rising past the stock’s average price. You’ll sometimes hear traders refer to this as breaking out or going past resistance.
As the stock rises, more people jump on the bandwagon, pushing the price even higher. Eventually, the rally fizzles as the market decides the stock is overvalued.
The last people to buy are generally the first to sell off. These investors are sometimes called “weak hands.” After a mini sell-off, the stock typically rebounds as the market coalesces around its new price.
Find Investments Built to Last
By analyzing this cycle, you can find stocks that are good buys. After the first giddy high, how far did the price fall? Steep drops generally indicate a market not entirely convinced this stock has fundamentals that merit a high price.
Over the long term, has the stock generally been trending upward? That’s a sign that the market likes where this company is headed.
Decide How Much You Want to Make
When a stock you’re holding is in a rally, it can be exciting. To prevent your emotions from taking over, decide how much you want to make: 10% profit, 15% profit, 20% profit?
Once you’ve hit your target profit, start selling your stock to protect your losses.
Be Careful About Further Investment
Remember those weak hands mentioned earlier? As the name connotes, you don’t want to be one. The longer a rally goes on, the less you should want to buy in.
You may want to buy more shares if you’re already invested in a stock having a rally, but you should limit any new exposure.
What is ATH? It’s an essential tool that can help you increase your upside profits when analyzed correctly.