Entering text into the input field will update the search result below

A Guide To The 52-Week High And The Risks Of Anchoring

Stockopedia profile picture

According to behavioural scientists, cognitive errors in humans can lead to duff decision-making. For investors, of course, this kind of weakness can end up being costly both mentally and financially. But while being aware of such flaws won't always save you from mistakes, it can offer at least some protection from making them.

There are few better places to explore just how big an impact 'behaviour' can have in the market than to look behind the scenes of the popular 52 Week High Momentum screen.

We track this strategy at Stockopedia, and it's up 20.9 percent over the past year - making it a top 20 performer. (It has returned 14.7 percent annualised over the past six years). It has also done well at resisting February's market volatility.

But like most momentum strategies, one of the interesting things about the 52-Week Highs approach is that it piggybacks on the behaviour of other investors. In particular, it takes advantage of what's known as Anchoring.

So, regardless of what you think about momentum (or whether you're even attracted by 52-week highs), knowing about Anchoring could change the way you think - consciously and unconsciously - about share prices. It can also explain, at least in part, why momentum is believed to be so powerful.

What is it about 52-week highs?

I've covered some of the inner workings of the 52-Week High screen a few times in the past (here's the most recent article). It's popular because the 52-week high is one of the most accessible data-points around. One-year highs are literally published all over the place - and they tend to catch the eye of investors.

But while the data for the strategy is readily available, the psychology that makes it useful is intricate. To a large degree, it calls on the 'momentum' investor to know that

This article was written by

Stockopedia profile picture
At Stockopedia.com we've a got a clear mission: to help individual investors beat the stock market. We've been doing this ever since we launched our initial online service for UK investors in 2012 through simple, academically proven methods applied at scale on big financial data. Since then we've grown our coverage to over 80 stock exchanges around the world, attracting more than ten thousand paying subscribers in 99 different countries. We've been acclaimed in the Financial Times, won "Best Investment Software" at the Shares Awards and are ranked in the top 3 services in the Investment Category on the independent reviews site Trustpilot. Join the community online at www.stockopedia.com to learn more.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.