If you’ve spent time in our trade room, you’ve likely heard the term new high of day (NHOD) talked about a lot. This term is important to know when trading.
NHOD stands for a new high of the day. It means the stock is at its highest trading price of the trading day. As a result, we often see the NHOD trading higher than the previous day’s close or the current day’s open.
Keep this in mind as later, I’ll discuss the power of the last day’s close and the importance of the present trading day’s opening.
Day Trading Course
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Steps to Trade New High of Day
When you open up your stock chart, I suggest four things. One, draw a trend line for the previous day’s close. Two, draw a trend line where the price opened. Third, draw a trend line where the highest candle is – this is your new high of the day (NHOD). And four, a line at the day’s low. Then, you wait.
You’re probably wondering what all this information will give you. A lot. It will identify gaps or sudden jumps in price with no trading between the two prices (i.e., the price is not trading in a range). Price will do one of two things: either blow through the NHOD or reverse. And that information is precise for day traders and anyone who uses technical analysis to enter trades.
Here’s an example using GameStop (GME) (WEN) to illustrate. On February 25th, GME hit a new high of the day at $184.21. However, since you’re marking your chart, you’ll notice that the stock price closed at $91.70 on the previous trading day. This means there is a gap, and gaps typically get closed.
With this information and confirmation from your technical indicators, such as volume, you’ll start seeing buy and sell signals as market sentiment changes. Sure enough, the stock gapped up on the open to $169.62, pulled back, and kept rising to $184.21.
As you can see on the chart, this was the NHOD. If you missed the entry on the pullback in the open, I suggest you wait. Watch the stock climb and wait for the reversal cues.
5 Second Take Away
- NHOD refers to a stock’s intraday high trading price
- The new low of the day, which is just that: the lowest stock price of the current trading day
- It’s pretty easy to find the high of the day; look for the highest candle close
- The new high and low of the day are used to base trades from
- Be careful; new highs on low volume can halt a big run
- It’s important when trading highs and lows that you mark the previous day’s close and high
GME Reversal Cues
- Long upper wick at $184.21 (this means selling pressure)
- Sideways consolidation
- Decreasing volume (buying pressure is declining)
- A close below the 20 (EMA) – this is a strong bear signal
- Finally, the huge breakdown bear candle came 60 minutes later.
To trade this, wait for the pullback to the 20 EMA and short it. I marked the chart so you can see it. Eventually, GME pulled back, closed the gap, and fell back to the $90 range. So, you would have known to avoid trading a NHOD with those reversal cues.
When to Sell NHOD Stocks
What goes up must go down – most of the time. So, how do you know when to liquidate your position? Your stock has hit its NHOD. Will price keep going to the moon, or will it come crashing down to Earth?
We have one telltale sign that it’s time to unload: volume. If a stock begins to hit new highs in price in low volume after making a great run, it will likely cease to act like a rocket ship. Yet, the stock may be beginning to put on the brakes on its spectacular run. It’s prime time to watch for serious sell signals when new highs keep occurring in low volume.
A heavy volume price drop means only one thing for sure: More shares are available for sale than willing buyers at the current price. In addition, people are emotional, and fear sets in when they see a large volume price drop. Panic selling sets in for fear that the price will drop lower. All of this increases the downward pressure on the stock.
And if things couldn’t get any worse, computer-programmed selling kicks in if the price drops below a predetermined level. This sell volume continues to fuel the supply/demand imbalance, forcing the stock price even lower. But, on a positive note, the stock will reach a price support level where potential buyers feel comfortable and buy the dip.
NHOD Example
This is a 5-minute intraday chart of $AAPL. Take note of the two black lines on the chart. The bottom line was the previous high of the day. The second line was when the new high of the day formed. As you’ll see, price action couldn’t hold the previous high of the day and failed. This created a head, and the previous high was the left shoulder. The price tried to rally again but failed, which created a head and shoulders pattern. Head and shoulders are a bearish pattern. Keep an eye on these patterns forming intraday when the NHOD doesn’t hold the previous level.
Final Thoughts: NHOD
The biggest reason many prefer to day trade is exposure or lack thereof. By unloading their positions within the trading day, they eliminate the possibility of negative overnight news impacting their stock price. From the release of earnings reports, broker upgrades/downgrades, and news, lots can happen after-hours. All of this puts one at risk if they’re holding stocks.
Day traders can utilize many strategies in their trading plans; utilizing the new high of day (NHOD) is just one. However, their choice of strategy will typically depend on a few things like their time availability and personality type.
Despite differences in their strategy, a unifying feature among successful traders is that they first develop and then discipline themselves to stick to their trading plan.
