High Minus Low
What is the High Minus Low Indicator?
The High Minus Low (HML) indicator is a technical analysis tool that measures the difference between a financial asset's highest and lowest prices per day or session. This indicator plots these differences over time and displays them as a line chart. The HML indicator is used primarily as a volatility gauge.
A high HML value illustrates range expansion as it visually represents a more extensive range between high and low prices. Conversely, a low HML value points to a low-volatility market in which smaller movements are more frequent, regardless of trending or non-trending environments.
How Is the High Minus Low Indicator Calculated?
The calculation for HML is straightforward: you subtract the low price from the high price of a stock or asset for a given session.
For instance, if a stock’s daily high was at $60 and its low was $45, the HML would be $15.
Interpreting the value of any HML level depends on the stock's average range of volatility. This can be gauged by observing the value of all HML levels over time.
How Do You Interpret the High Minus Low Indicator?
Interpreting the HML indicator involves analyzing the values it produces. The value of the information and how you turn this into an actionable signal will vary according to your approach.
The following are the basic levels of interpretation:
High HML Value. A significant difference between the high and low prices suggests high market volatility, potentially indicating increased trading activity and interest in the asset. Some traders might interpret this as a signal for potential market turbulence or that a “spike” in volatility might suggest the onset of a more significant directional move.
Low HML Value. A small price range indicates lower volatility, suggesting more stable market conditions and potentially less trading interest. If prices are in consolidation, it can also mean that the market is poised for a sizeable explosive move toward a given direction.
Take a look at the chart below.
Note that the HML range is largely under 0.40 for most daily sessions (blue dotted line). The range will occasionally expand, but it typically won’t deviate too far above 0.40.
Now, look at the two HML spikes (red circles). The first spike led to a short-term rally that fizzled into a low-volatility downtrend. In March 2024, an uptrend resumed, but the volatility remained low. In April 2024, there was a second spike, which reversed the uptrend.
Sometimes, range expansion precedes a change in trend. Sometimes, changes in trend will occur in the absence of any significant range expansion.
The following are a few other ways to use the HML indicator.
Volatility analysis. By tracking the fluctuations in the HML values, you can identify periods of higher or lower market volatility, which can inform your decisions about risk management and investment timing.
Timing the market. Low volatility periods (low HML values) might signal that the market is poised for a large-range expansion. Range expansions can present an opportunity to enter the market depending on your trading strategy. In this case, it would help to use other indicators to fine-tune your setup and entry.
Charting the HML Indicator With StockChartsACP
To add the High Minus Low indicator in StockChartsACP, first enter the ticker symbol for the stock, exchange-traded fund, or index you want to analyze.
From Chart Settings, select High Minus Low from the list of Standard Indicators.
To change the indicator parameters, click the settings icon next to the indicator name displayed in the top of the navigation bar. This allows you to change Line Style, Opacity, and Colors. You can also add an overlay to the indicator.
A Quick Note on the HML’s Pros and Cons
As far as the pros are concerned, the High Minus Low indicator is simple to calculate and easy to understand. It provides a clear illustration of a stock’s market volatility. Additionally, it’s a versatile indicator applicable to various asset types, from stocks and bonds to commodities and cryptocurrencies.
Now, the cons. The HML indicator has limitations. It doesn’t provide directional information about price movements, nor will it indicate the beginning or end of a trend. HML spikes are direction-neutral, and trends can happen in low- and high-volatility environments. Additionally, the HML offers no insight into market sentiment or buying pressure, which are crucial for understanding the motivations behind the price changes.
The Bottom Line
The High Minus Low (HML) indicator is a straightforward volatility indicator. Its ease of use and clarity in demonstrating volatility make it open to different angles of interpretation and use. However, the HML does have its limitations. So, to enhance its effectiveness, consider combining it with other indicators to provide a more comprehensive view of market conditions and potential trends.
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