Momentum trading involves chasing the market by identifying the trend in price action of a specific stock, and predicting whether the trend is likely to continue.<\/p>\n
The momentum trader looks for a good entry point, and would buy the stock if it has increased in value quickly.<\/p>\n
Similarly, momentum traders could buy into stocks that have been oversold, in other words where the share price has declined rapidly within a short period of time.<\/p>\n
But one concept that all cautious momentum traders are familiar with is \u201cmean reversion\u201d.<\/strong><\/p>\n In finance, mean reversion is a theory which suggests that, after an extreme price move, asset prices tend to return back to their normal or average levels.<\/p>\n In other words, if there has been a shock in a stock price (either up or down), mean reversion theory says that prices will revert to their long term average.<\/p>\n Because of that, there\u2019s obviously a bit of risk involved in momentum trading.<\/p>\n To be a successful momentum trader, one needs to be able to identify the best stocks quickly and accurately.<\/p>\n The goal for momentum traders is basically to enter into trades at key points in the trend in order to maximise profits.<\/p>\n There are several indicators to quantify momentum, and here we look at three main signals used by the market:<\/p>\n 52-week high<\/strong> \u00a0<\/p>\n Traders often view the\u00a052-week highs\u00a0as entry signals.<\/p>\n This is due what\u2019s called the \u201c52-week high effect\u201d<\/strong> \u2013 where if \u00a0a 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.<\/p>\n On the other hand, if a stock is far away from its 52-week high, chartists believe the momentum will continue going that way.<\/p>\n 10 ASX small caps at 52-week high<\/strong> WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Compumedics (ASX:CMP)<\/a><\/strong><\/p>\n Unaudited revenues for H1 FY24 are expected to be a record H1 result of approximately $26m, 35% higher than pcp.<\/p>\n Sales orders taken for H1 FY24 were also a record H1 result of $30.3m, which is 74% higher than pcp.<\/p>\n Compumedics says it expects to return to profitability in H1 FY24.<\/p>\n \u00a0<\/p>\n Vita Life Sciences (ASX:VLS)<\/a><\/strong><\/p>\n Vita has been surging since providing a profit guidance in mid December.<\/p>\n Sales for the full year FY23 are expected to come in between $73m-$74m, versus FY22 of $66.9m.<\/p>\n Pre-tax profit is expected to come in between $11.3m-11.8m, versus FY22 of $10.7m.<\/p>\n The company said its sales growth has continued in all major markets: Australia, Malaysia and exports into China.<\/p>\n \u00a0<\/p>\n Simple Moving Averages (or SMA)<\/strong>\u00a0is another indicator that can be used to gauge momentum.<\/p>\n 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.<\/p>\n 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,\u00a0the trend is down.<\/p>\n 10 ASX small caps at prices above SMA<\/strong> WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Fatfish (ASX:FFG)<\/a><\/strong><\/p>\n Shares of this Southeast Asian-focused fintech company have tripled over the past month.<\/p>\n The company told the ASX that it had no idea why the share price has risen so much, other than the fact that it had just completed a successful capital raising that raised $3.25 million via a placement.<\/p>\n The placement was strongly oversubscribed with its completion announced on 3 January.<\/p>\n \u00a0<\/p>\n Avita Medical (ASX:AVH)<\/a><\/strong><\/p>\n The commercial-stage regenerative medicine company has been rising since announcing preliminary unaudited financial highlights for Q4 and full-year 2023, as well as providing guidance for Q1 2024.<\/p>\n Commercial revenue for Q4 2023 is expected to be approximately $14.1 million, an increase of approximately 50% on the pcp.<\/p>\n Commercial revenue for the full-year 2023 is expected to be approximately $49.8 million, an increase of 46% on the pcp.<\/p>\n The company has guided the market to commercial revenue of between $14.8 to $15.6 million for Q1 2024.<\/p>\n Commercial revenue for the full-year 2024 is expected to be in the range of $78.5 to $84.5 million, up between 57%-69% on the pcp.<\/p>\n \u00a0<\/p>\n Here\u2019s another momentum signal used by the market \u2013 the Relative Strength Index (RSI)<\/strong>.<\/p>\n RSI is a measure of the strength of a stock\u2019s momentum, either in the upward or the downward direction, and is used to indicate whether a stock is oversold or undersold.<\/p>\n Generally speaking, an RSI above 70 means a stock is overbought; and an RSI below 30 indicates that it\u2019s oversold.<\/p>\n An RSI above 80 meanwhile is strongly overbought, and an RSI below 20 is strongly oversold.<\/p>\n 10 ASX small caps at prices with RSI Oversold signal<\/strong> WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Perenti (ASX:PRN)<\/a><\/strong><\/p>\n The mining services company has been sold off recently following a string of suspensions in the mining operations of a handful of ASX explorers.<\/p>\n Panoramic Resources (ASX: PAN)<\/a>\u00a0said last week that it \u00a0was suspending operations at its Savannah Nickel Project\u00a0in WA due to low nickel prices.<\/p>\n Core Lithium (ASX: CXO)<\/a> announced two weeks ago that it intended to suspend mining at its flagship Finniss operation in the NT.<\/p>\n And Alumina (ASX: AWC)<\/a>, the Aussie vehicle for NYSE-listed Alcoa, said it will stop producing alumina at its loss-making Kwinana refinery by September. Alumina said the decision was in response to losses incurred at the refinery, together with its age, scale, operating costs and current bauxite grades.<\/p>\n \u00a0<\/p>\n Kairos Minerals (ASX:KAI)<\/a><\/strong><\/p>\n Kairos has been falling despite announcing in mid December that it\u2019s made a high-grade rare earths discovery at the Roe Hills project in the Eastern Goldfields region of WA, not far from Kalgoorlie.<\/p>\n The company reported thick zones of high-grade, clay-hosted rare earth elements (REE) with assays up to 2.31% TREO \u2013 over a large area at the project\u2019s Black Cat prospect.<\/p>\n The results include a standout intersection of 28m at 3854ppm TREO from 32m which includes 4m at 2.31% TREO (23,182ppm) in drillhole RHRC253.<\/p>\n \u00a0<\/p>\n Stockhead has not provided, endorsed or otherwise assumed responsibility for any perceived financial product advice contained in this article.<\/em><\/p>\n <\/span><\/p>\n The post Hot Money Monday: Beware of \u2018mean reversion\u2019 as Compumedics, Fatfish surge on momentum<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"
\nSimple Moving Average<\/strong>
\nRelative Strength Index<\/strong><\/p>\n10 ASX small caps nearest or at 52-week highs<\/h2>\n
\n(data from Commsec)<\/strong><\/p>\n10 ASX small caps with prices above SMA<\/h2>\n
\n(data from Commsec)<\/strong><\/p>\n10 ASX small caps with low RSI (Oversold)<\/h2>\n
\n(data from Commsec)<\/strong><\/p>\n