Momentum trading involves betting that the stock market’s recent winners will remain winners in the near term. Picture Getty
Hot Money Monday: Momentum trading has been a popular strategy for decades, and here’s how you can use it
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If everyone knew the secret to vast riches, how could a trading strategy possibly work anymore?
Well, there is one strategy that has persisted, and been followed and widely discussed for decades – it’s called “momentum trading”.
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.
One of the main benefits of momentum trading 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)
| Code | Name | Price | How far from 52-Week High? | 1 mth return | 6 mth return | 12 mth return |
|---|---|---|---|---|---|---|
| FL1 | First Lithium | $0.72 | 0.00% | 97.26% | -- | -- |
| PYC | PYC Therapeutics | $0.11 | 0.00% | 92.98% | 89.66% | 52.78% |
| SKT | SKY Network Television | $2.70 | 0.00% | 0.75% | 10.66% | 26.17% |
| VTX | Vertex Minerals | $0.17 | 0.00% | 6.25% | 54.55% | 27.82% |
| C79 | Chrysos Corp | $7.81 | 0.00% | 10.62% | 75.11% | 144.06% |
| HLA | Healthia | $1.80 | 0.28% | 1.41% | 54.74% | 53.42% |
| GTK | Gentrack Group | $5.90 | 0.34% | 29.39% | 47.50% | 150.00% |
| MYX | Mayne Pharma | $5.48 | 0.54% | 54.80% | 40.87% | 14.17% |
| BFG | Bell Financial | $1.13 | 0.88% | 20.21% | 22.83% | 0.89% |
| LPI | Lithium Power | $0.55 | 0.91% | 3.81% | 70.31% | 3.81% |
RNA-therapies focused biotech, PYC Therapeutics, said its fourth drug candidate had disease-modifying potential in patients with end-stage renal failure due to PKD (polycystic kidney disease).
A study conducted by PYC in human 3-dimensional models showed that its investigational drug candidate, PYC-003, could address PKD at the root cause.
Results showed a deduction in cyst size and frequency following treatment with PYC-003 in a human 3D model, which was generated using tissue collected directly from the kidneys of PKD patients.
Recent lithium discoveries in the Lake Johnston area, together with an internal review, have prompted Vertex to undertake a soils program across its 100% owned Lake Johnston, Taylor Rock tenement E63/2058.
Vertex has lodged an Exploration Licence Application over additional tenure in the Lake Johnston area – now designated E63/2400.
Taylor Rock sits northeast of Charger Metals Medcalf Spodumene Deposit and TG Metals Burmeister and Jaegermeister Li Prospects.
Vertex is also expecting to receive its Reward Gold Mine (Hill End) Pre Feasibility study in December.
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 |
|---|---|---|---|---|---|---|
| FL1 | First Lithium | $0.72 | >5% Above SMA | >5% Above SMA | >5% Above SMA | >5% Above SMA |
| ACR | Acrux | $0.05 | >5% Above SMA | >5% Above SMA | >5% Above SMA | -1 to -5% Below SMA |
| CKA | Cokal | $0.12 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA |
| AEI | Aeris Environmental | $0.03 | >5% Above SMA | >5% Above SMA | >5% Above SMA | -1 to -5% Below SMA |
| ANG | Austin Engineering | $0.31 | >5% Above SMA | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA |
| IMC | Immuron | $0.09 | >5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA | 1 to 5% Above SMA |
| ASE | Astute Metals NL | $0.04 | >5% Above SMA | >5% Above SMA | 0 to 1% Above SMA | < -5% Below SMA |
| LPD | Lepidico | $0.01 | >5% Above SMA | 1 to 5% Above SMA | -1 to -5% Below SMA | < -5% Below SMA |
| TD1 | TALI Digital | $0.00 | >5% Above SMA | >5% Above SMA | >5% Above SMA | < -5% Below SMA |
| GSR | Greenstone Resources | $0.01 | >5% Above SMA | >5% Above SMA | 1 to 5% Above SMA | < -5% Below SMA |
Astute recently advised that a recent rockchip sampling campaign has revealed outstanding rock chip assay results of up to 2,190ppm lithium from sampled claystone at the recently staked 100%-owned Red Mountain Lithium Project in Nevada.
A total of 36 samples were taken at Red Mountain, targeting claystone and other outcropping to subcropping rock types to characterise the Project’s potential for lithium mineralisation.
Additionally, Astute also said follow-up drilling has intersected more intervals of prospective claystone host rock at its 100%-owned Altair Lithium Project in Nevada, USA.
Hole AL03 intersected 22.9m (75ft) of claystone and gravelly clay from 153.9m (505ft) to the end-of-hole. Hole AL02 intersected a combined 45.7m (150ft) of claystone and gravelly clays over nine zones with interbedded gravels.
Greenstone Resources (ASX:GSR)
Greenstone has a strategic review currently underway to assess near-term mining opportunities at Burbanks & Phillips Find.
Existing Small Mining Permit at Burbanks North may provide an opportunity to expedite production.
Initial pit optimisations at Burbanks North shows potential for a starter pit within the permitted area, while early discussions are currently underway in respect of mining and milling partnerships.
Meanwhile, Phillips Find hosts a resource of 732,960 tonnes at 2.30g/t for 54,567 ounces, which are located either adjacent to, or below the historical open pits of Baccus Gift, Newhaven and Newminster, the latter of which was last mined profitably in 2015 at a materially lower gold price of ~$1,500/ounce.
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 been 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 |
|---|---|---|---|---|
| RR1 | Reach Resources | Oversold | Oversold | Oversold |
| HAW | Hawthorn Resources | -- | Oversold | -- |
| CIW | Clime Investment Management | -- | Oversold | -- |
| BKT | Black Rock Mining | -- | Oversold | -- |
| MTB | Mount Burgess Mining | -- | Oversold | -- |
| NMT | Neometals | -- | Oversold | -- |
| ABA | Auswide Bank | Oversold | Oversold | -- |
| YPB | YPB Group | -- | Oversold | -- |
| GW1 | Greenwing Resources | Oversold | Oversold | -- |
| CHN | Chalice Mining | Oversold | Oversold | -- |
Reach has been sold off since announcing assay results from the company’s maiden drill program at its 100% owned Morrissey Hill Lithium project in the Gascoyne Mineral Field WA.
The Phase 1 drill program comprised 15 RC holes for a total of approximately 2,600m.
The drilling was designed to test the depth extent and subsurface continuity of surface lithium mineralisation identified from earlier soil and rock chip sampling. Rock chips in the targeted area returned values of up to 2.3% Li2O, 4295ppm Cs and 706ppm Ta.
Auswide recently announced the appointment of current non-executive director Greg Kenny as interim managing director and CEO of Auswide Bank effective 11 December 2023.
Kenny was appointed to the Auswide Bank board of directors in November 2013. He has had an extensive career with Westpac Banking Corporation and St George Bank where he held the positions of managing director (NSW and ACT), general manager Corporate and Business Bank and general manager Group Treasury and Capital Markets.
Prior to that, Kenny held positions with Bank of New York and Bank of America in Australia.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any perceived financial product advice contained in this article.
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