Hot Money Monday: Momentum trading has been a popular strategy for decades, and here’s how you can use it

If everyone knew the secret to enormous wealth, how could a trading strategy work anymore?

Well, there is one strategy that has endured and been followed and widely discussed for decades – it is called “momentum trading”.

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

The strategy uses the strength of stock price movements as a basis for opening positions and seeks to use momentum to enter a trend as it gathers momentum.

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

Obviously, there is a bit of risk involved in momentum trading because you are essentially making a decision to buy a stock based on the recent buying activity of other traders.

So to be a successful momentum trader one must be able to identify the best stocks quickly and accurately.

The goal of momentum traders is basically to enter trades at key points in the trend to maximize profits.

There are several indicators to quantify momentum, and here we look at three main signals used by the market:

  • Height 52 weeks
  • Simple moving average
  • Relative strength index

10 ASX small caps near or at 52-week highs

Traders often look at 52-week highs as entry signals.

This is due to what is called “52 Weeks High Power” – where if a price has broken beyond 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 well off its 52-week high, chartists believe momentum will continue that way.

10 ASX small caps at 52 week high

(data from Commsec)

The meat Name Price How far from the 52-week high? 1 month return 6 month return 12 month 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 USD 0.00% 0.75% 10.66% 26.17%
VTX Vertex Minerals $0.17 USD 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%

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PYC Therapeutics (ASX:PYC)

RNA therapy-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 treat the cause of PKD.

The results showed a reduction in cyst size and frequency after treatment with PYC-003 in a human 3D model that was generated using tissue collected directly from the kidneys of PKD patients.

Vertex Minerals (ASX:VTX)

Recent lithium discoveries in the Lake Johnston area, along with an internal review, have led Vertex to complete a soil program across its 100% owned Lake Johnston, Taylor Rock lease E63/2058.

Vertex has filed an exploration license application over additional tenements in the Lake Johnston area – now designated E63/2400.

Taylor Rock is northeast of Charger Metals’ Medcalf Spodumene Deposit and TG Metals’ Burmeister and Jaegermeister Li Prospects.

Vertex also expects to receive its Reward Gold Mine (Hill End) Pre Feasibility Study in December.

10 ASX small caps with prices above SMA

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

The SMA is often used to determine whether a stock price will continue in the same direction or whether 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)

The meat 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
CCA Coke $0.12 >5% above SMA 1 to 5% above SMA 1 to 5% above SMA -1 to -5% Below SMA
AEI Aeris Environment $0.03 USD >5% above SMA >5% above SMA >5% above SMA -1 to -5% Below SMA
MEADOW Austin Engineering $0.31 >5% above SMA >5% above SMA >5% above SMA 1 to 5% above SMA
BMI Immuron $0.09 >5% above SMA 1 to 5% above SMA 1 to 5% above SMA 1 to 5% above SMA
ASE Clever metal NL $0.04 >5% above SMA >5% above SMA 0 to 1% above SMA
LPD Lepidico $0.01 USD >5% above SMA 1 to 5% above SMA -1 to -5% Below SMA
TD1 TALI Digital $0.00 >5% above SMA >5% above SMA >5% above SMA
GSR Greenstone Resources $0.01 USD >5% above SMA >5% above SMA 1 to 5% above SMA

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Fast Metals (ASX:ASE)

Wise recently announced that a recent chip sampling campaign has revealed excellent chip assay results of up to 2,190 ppm 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 excavation for subcropping rocks to characterize the project’s lithium mineralization potential.

In addition, Astute also said that follow-up drilling has intersected several intervals of potential shale host rocks at its 100% owned Altair Lithium Project in Nevada, US.

Hole AL03 intersected 22.9 m (75 ft) of claystone and gravelly clay from 153.9 m (505 ft) to the end of the hole. Hole AL02 intersected a combined 45.7 m (150 ft) of claystone and gravelly clay over nine zones of interbedded gravel.

Greenstone Resources (ASX:GSR)

Greenstone is currently conducting a strategic review to assess near-term mining opportunities at the Burbanks & Phillips Find.

Existing small mining permit at Burbanks North may provide opportunity to accelerate production.

Initial pit optimizations at Burbanks North show potential for a starter pit within the permitted area, while early discussions are currently underway regarding mining and milling partnerships.

Meanwhile, the Phillips Find hosts a resource of 732,960 tonnes at 2.30 g/t for 54,567 ounces, which is located either adjacent to or below the historic open pits of Baccus Gift, Newhaven and Newminster, the latter of which was last mined profitably in 2015 at a significantly lower gold price of ~$1,500/ounce.

10 ASX small caps with low RSI (oversold)

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

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

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

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

10 ASX small caps at prices with RSI Oversold signal

(data from Commsec)

The meat Name 2 day RSI 9 day RSI 14 day RSI
RR1 Reach resources Oversold Oversold Oversold
HAW Hawthorn Resources Oversold
CIW Climate Investment Management Oversold
GDP Black Rock Mining Oversold
MTB Mount Burgess Mining Oversold
NMT Neometals Oversold
ABA Australia Bank Oversold Oversold
YPB YPB Group Oversold
GW1 Greenwing Resources Oversold Oversold
CHN Lime mining Oversold Oversold

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Range Resources (ASX:RR1)

Reach has been sold since the publication of assay results from the company’s first drill program at its 100% owned Morrissey Hill Lithium project in the Gascoyne Mineral Field WA.

The Phase 1 drilling program included 15 RC holes totaling approximately 2,600 m.

The drill was designed to test the depth extent and subsurface continuity of surface lithium mineralization identified from previous soil and rock chip sampling. Rock chips in the targeted area yielded values ​​of up to 2.3% Li2O, 4295 ppm Cs and 706 ppm Ta.

Auswide Bank (ASX:ABA)

Auswide recently announced the appointment of current non-executive director Greg Kenny as interim CEO and managing director of Auswide Bank with effect from 11 December 2023.

Kenny was appointed to the Auswide Bank Board 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. head of 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 given, endorsed or otherwise assumed responsibility for any perceived financial product advice contained in this article.

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