Renowned fund manager Richard Driehaus first pioneered momentum trading in the 1960s.

Momentum trading involves betting that the stock market’s recent winners will remain winners in the near term.

The strategy uses the strength of stock price movements as a foundation to open positions, seeking to use momentum to enter a trend as it picks up steam.

The most challenging piece of any momentum trading strategy is identifying those very trends. Even as you identify the entry points, you must then monitor the optimal exit points and know when to get out.

One of the main benefits of momentum trading however is that it can generate high returns in a short period of time, especially in volatile markets.

Obviously there’s a bit of risk involved in momentum trading because in essence, 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.

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

There are several indicators to quantify momentum, 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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Cobram Estate Olives (ASX:CBO)

Cobram has been rising since announcing the completion of its 2023 Californian harvest.

The Californian harvest led to the production of 3.2 million litres of olive oil (89% higher than 2022 and 48% higher than 2021). Cobram notes:

“This growth in production is driven by the larger area under supply contract from third-party olive growers, and the maturing profile of our groves in California and was in line with our expectations and likely to place CBO as the largest olive oil producer in the USA.”

Cobra says the increased olive oil availability will enable the company’s USA operations to continue to grow sales.


Monash IVF (ASX:MVF)

Monash says the first four months of trading for FY24 had been very pleasing.

“The positive momentum that built across our Domestic IVF and Women’s Ultrasound business during the second half of FY23 is continuing in the current financial year, and activity is building in the Singapore business.”

In Australia, the IVF industry has continued its positive growth from 2H23, with FY24 October YTD Australian industry stimulated cycles increasing by 2.8%.

In terms out of outlook, Monash says the Australian IVF industry and Monash IVF will continue to be a beneficiary of underlying structural demand drivers.

This market is supplemented by emerging services such as genetics and egg freezing, growing patient segments, in particularly the LGBTQIA+ segment, and new patient acquisition channels.


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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Aeris Environmental (ASX:AEI)

The environmental technology company has been rising after giving an update on its FY24 trading.

Revenues as of 17 November were +121% vs pcp. Gross margin was 58% for YTD FY24.

The company said its operating expenditure had a net reduction of $0.25m.

Looking ahead, management said it wants to continue building its sales pipeline, with an enterprise focus.

Aeris’ goal is to drive the twin value proposition of energy efficiency and indoor environmental quality for the built environment market.


Advance ZincTek (ASX:ANO)

The manufacturer of zinc oxide powder for the personal care sector has been rising since receiving a cash off-market takeover offer of all ANO shares for $1.05 per share by the Mizikovsky Group, or its preference to acquire up to 11,237,709 shares in ANO.

ANO’s board says it is looking into the proposed offer and ANO shareholders need to take no action at this stage.


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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Alliance Nickel (ASX:AXN)

At the AGM, the battery focused company reminded investors that it has an advanced asset of scale in a first-class mining region.

The company’s project has a mine life of +25 years, with high-grade resource on granted mining leases.

Looking ahead, the binding offtake agreement with Stellantis N.V that it signed in April will transform its project development potential.


Venture Minerals (ASX:VMS)

The mineral exploration company has been falling since announcing that it has received binding commitments from institutional and sophisticated investors to raise $2m through a diluted tranche placement of shares.

The proceeds will be used to advance its maiden resource at the new, high grade, Jupiter REE discovery in Western Australia.