'Cut losses and let winners run' - advice from world renowned momentum trader. Picture Getty
Hot Money Monday: ‘Cut losses and let winners run’ – advice from legendary momentum trader Paul Tudor Jones
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Momentum trading involves taking advantage of, and making profits from, upward trends in a stock. It involves betting that the stock market’s recent winners will remain winners.
One of the best known momentum traders in the world is hedge fund manager Paul Tudor Jones, who’s earned a reputation for being able to anticipate market trends.
Throughout the years, Tudor Jones has always emphasised the importance of identifying trends, as well as avoiding attempts to pick tops or bottoms.
He believes in riding the momentum of a stock until it shows signs of reversal, saying that those stocks have a higher probability of continuing their upward trajectory in the near term.
Conversely, on the subject of stocks that are on a downward trend, one of his famous quotes is: “Losers average losers.”
He contends that: “Only a loser would double down on a position that’s already taken a significant hit.”
These beliefs reflect his approach to trading and underscore the importance of cutting losses and letting winners run, which is a key principle in momentum trading strategies.
For these keen on applying his principles, there are fortunately several market signals we can use 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)
| Code | Name | Price | How far from 52-Week High? | 1 mth return | 6 mth return | 12 mth return |
|---|---|---|---|---|---|---|
| AMO | Ambertech | $0.33 | 0.00% | 25.00% | 51.16% | 20.37% |
| GWA | GWA Group | $2.80 | 0.00% | 22.27% | 49.33% | 61.38% |
| VPR | Volt Power | $0.00 | 0.00% | 100.00% | 100.00% | 0.00% |
| EGH | Eureka Group | $0.55 | 0.00% | 18.48% | 23.86% | 21.11% |
| SKS | SKS Tech | $0.37 | 0.00% | 29.82% | 117.65% | 105.56% |
| SSM | Service Stream | $1.23 | 0.00% | 30.85% | 41.38% | 79.56% |
| FSI | Flagship Investments | $1.95 | 0.00% | 2.63% | 10.48% | -- |
| PIQ | Proteomics | $1.19 | 0.00% | 14.42% | 36.78% | 23.96% |
| FGG | Future Generation | $1.28 | 0.00% | 4.94% | 6.25% | 7.59% |
| ONE | Oneview Healthcare | $0.39 | 0.00% | 35.09% | 92.50% | 296.91% |
PIQ has been granted a European patent for its PIQ’s OxiDx diagnostic test technology.
OxiDx offers a comprehensive solution for monitoring levels of oxidative stress using a simple fingerprick blood test.
The OxiDx test can measure levels of muscle damage using a simple fingerprick blood sample to detect protein biomarkers in the blood.
PIQ says the European patent is a significant milestone for commercialisation of this innovative technology in the key markets of Europe.
“It is exciting to see the uniqueness of the OxiDx technology being recognised in leading markets, and we look forward to the technology rolling out,” said PIQ’s managing director, Dr Richard Lipscombe.
The clean energy power generator reported a 54% increase in full year FY23 revenue to $5.03 million compared to the pcp.
Bottom line was a 132% increase in Adjusted EBITDA to $2.09 million compared to the pcp.
During FY23, the company continued to pursue opportunities to deploy the EcoQuip MSLT & MSCT in Australia and USA.
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)
| Code | Name | Last Price Value | Price vs. Simple Moving Average | Price vs. 20 day SMA | Price vs. 50 day SMA | Price vs. 200 day SMA |
|---|---|---|---|---|---|---|
| BTR | Brightstar Resources | $0.02 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| ADA | Adacel Technologies | $0.72 | >5% Above SMA | 0 to 1% Above SMA | -1 to -5% Below SMA | 1 to 5% Above SMA |
| ADN | Andromeda Metals | $0.03 | >5% Above SMA | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA |
| AGY | Argosy Minerals | $0.15 | >5% Above SMA | >5% Above SMA | >5% Above SMA | < -5% Below SMA |
| AJL | AJ Lucas | $0.01 | >5% Above SMA | 1 to 5% Above SMA | >5% Above SMA | -1 to -5% Below SMA |
| ALK | Alkane Resources | $0.59 | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
| AMO | Ambertech | $0.33 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| ANG | Austin Engineering | $0.45 | >5% Above SMA | 1 to 5% Above SMA | >5% Above SMA | >5% Above SMA |
| PER | Percheron Therapeutics | $0.09 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| IMC | Immuron | $0.13 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
Immuron jumped 80% in a single day last week after announcing interim topline results confirming the efficacy of Travelan in preventing diarrhoea following a bout of enterotoxigenic Escherichia coli (ETEC).
The study on 60 patients show that a single daily dose of Travelan is 36.4% effective in the prevention of moderate to severe diarrhoea induced by ETEC, when compared to the placebo group in the study.
Around 66.7% protective efficacy against ETEC-induced severe diarrhoea was also observed in the patients taking Travelan, compared to the placebo group (secondary endpoint).
Recent drilling from the underground development at the Roswell deposit has confirmed significant high grade gold mineralisation, and lifted the initial underground Ore Reserves for Roswell to 237,000 ounces.
Including the planned open cut, total Ore Reserves for Roswell now stand at 450,000 ounces.
Further drilling continues to refine and expand both the underground reserves and resources.
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)
| Code | Name | 2 Day RSI | 9 Day RSI | 14 Day RSI |
|---|---|---|---|---|
| ACR | Acrux | -- | Oversold | -- |
| GLL | Galilee Energy | Oversold | Oversold | -- |
| KME | Kip McGrath | Oversold | Oversold | Oversold |
| VAL | Valor Resources | -- | Oversold | -- |
| AFL | AF Legal | -- | Oversold | -- |
| SPN | Sparc Technologies | -- | Oversold | -- |
| OMH | OM Holdings | -- | Oversold | -- |
| ABV | Advanced Braking | -- | Oversold | -- |
| SBR | Sabre Resources | -- | Oversold | -- |
| KPO | Kalina Power | -- | Oversold | -- |
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