Momentum-oriented investors live by the saying “the trend is your friend”.

In essence, momentum investors will be “buying high, but hoping to sell even higher” – which is counter to the well-known strategy of “buy low and sell high”.

While trading the stock market inherently involves some level of risk, trading based on momentum obviously involves that bit more risk because you’re making a decision to buy a stock based on recent buying activities of other traders.

So to be a successful momentum trader, one needs to be able to identify the best stocks quickly and accurately, and identify good entry points.

The goal for momentum traders is basically to enter into trades at these key points in the trend in order to maximise profits.

Fortunately, there are several indicators to quantify these, and here we look at three main signals used by the market:

  • 52-week high
  • Simple Moving Average
  • Relative Strength Index


10 ASX small caps nearest or at 52-week highs

Traders often view the 52-week highs as entry signals.

This is due what’s called the “52-week high effect” – where if  a price has broken out above its 52-week range, there must be some factor that generated enough momentum to further continue the price movement in the same direction.

On the other hand, if a stock is far away from its 52-week high, chartists believe the momentum will continue going that way.


10 ASX small caps at 52-week high
(data from Commsec)

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Playside Studios (ASX:PLY)

Games maker Playside announced that Fumi Games’ MOUSE is the latest title to be signed to its Publishing division.

Set to launch on PC/Console in calendar 2025, MOUSE is a classic first-person shooter with a retro, 1930s-inspired cartoon aesthetic, rubber hose animation style, distinct level design and a vast array of playful weaponry.

Separately, Playside notched up record quarterly revenues of $20.7m, up +106% on the pcp.

EBITDA for the quarter was $8.0m vs September Quarter of $4.2m.


Cape Range (ASX:CAG)

The company’s accounting software, Boztrack, booked $196k (Malaysian Ringgit 593k) in revenue for Q4 FY23, an improvement of 8.2% over the pcp.

This increase was driven by improved sales of Biztrak MSB and Biztrak WMS software licences, along with robust software maintenance and customisation projects.

As a result, Biztrak’s net profit rose to $70k, a significant 120% increase compared to the pcp.


10 ASX small caps with prices above SMA

Simple Moving Averages (or SMA) is another indicator that can be used to gauge momentum.

SMA is often used to determine whether a stock price will continue in the same direction, or if it will reverse a bull or bear trend.

As a general rule, if the current stock price is above the SMA, the price trend is up. If the price is below the SMA, the trend is down.

10 ASX small caps at prices above SMA
(data from Commsec)

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AusQuest (ASX:AQD)

The minerals explorer said that its airborne VTEM survey over the Balladonia Project in the Fraser Range region of WA has identified a number of high-priority EM targets.

The survey, comprising a total of 1,104km, was flown along east-west flight lines spaced 200m apart using the helicopter-mounted VTEM Max system and a base frequency of 25Hz.

Preliminary interpretation of the VTEM data has highlighted several strong EM responses, indicative of potential massive sulphide mineralisation.


Macro Metals (ASX:M4M)

Macro announced that heritage survey clearances have been received for the priority drill targets at the Mogul VMS Project in the Pilbara region.

Drilling will be co-funded through an Exploration Incentive Scheme grant of $180,000.

The program will test priority bedrock IP targets beneath high-grade rock-chips and drilling at the Mogul Cu-Pb-Zn-Ag-Au project.


10 ASX small caps with low RSI (Oversold)

Here’s another momentum signal used by the market – the Relative Strength Index (RSI).

RSI is a measure of the strength of a stock’s momentum, either in the upward or the downward direction, and is used to indicate whether a stock is oversold or undersold.

Generally speaking, an RSI above 70 means a stock is overbought; and an RSI below 30 indicates that it’s oversold.

An RSI above 80 meanwhile is strongly overbought, and an RSI below 20 is strongly oversold.

10 ASX small caps at prices with RSI Oversold signal
(data from Commsec)

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Sayona Mining (ASXL:SYA)

The lithium producer has undertaken an operational review of its North American Lithium (NAL) operation, focusing on optimising cost structure to manage cash flow and enhance financial sustainability.

Sayona has cut 14 staff at its Québec subsidiary following the review, and in response to market conditions.

“This review of our Québec operations is focusing on reducing our cost base, enhancing productivity and improving Sayona’s ability to continue to produce lithium throughout the market cycle,” said James Brown, Sayona’s Interim CEO.


Melbana Energy (ASX:MAY)

Melbana said flow testing of Unit 3 of its Amistad reservoir has been completed satisfactorily and all objectives met.

The presence of moveable oil of similar quality/reservoir conditions as that observed while testing same unit in Alameda-2 was confirmed.

No formation water was observed during testing.

Melbana is now preparing to drill to test the deeper Alameda and Marti reservoirs discovered in 2022 that have been independently estimated to contain a combined 179 million barrels of Prospective (recoverable) Resource.


Stockhead has not provided, endorsed or otherwise assumed responsibility for any perceived financial product advice contained in this article.