A momentum trader will essentially be \u201cbuying high, but hoping to sell even higher\u201d \u2013 which is the counter to the well known strategy of \u201cbuy low and sell high\u201d.<\/p>\n
The biggest question for momentum traders is therefore how to find those stocks before they make an even bigger move.<\/p>\n
But does the momentum trading strategy work in every market?<\/p>\n
Peter Brooke, head of quantitative investments at Platypus Asset Management<\/strong>, told Morningstar<\/strong> that the momentum factor is the most powerful in the Australian share market, much more so compared to global markets.<\/p>\n \u201cIt\u2019s very strong in Australia, momentum is not as strong in the S&P 500, and that\u2019s why you need to take account of it in Australian equity portfolios,\u201d Brooke said.<\/p>\n But why is that?<\/p>\n According to Brooke, a possible explanation is culture.<\/p>\n \u201cWe have a culture more focused on the short-term, and that feeds in to the Australian investor sentiment,\u201d he explained.<\/p>\n Other possible explanations for the strong performance of the momentum strategy here in Australia include the high participation of retail investors.<\/p>\n \u201cAcademic literature and our own research suggest that stock price momentum is, on average, the best performing factor in the Australian share market,\u201d Brooke added.<\/p>\n To be a successful momentum trader therefore, 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 Fortunately, there are several indicators to quantify those key points, 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 to 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 \u00a0<\/p>\n 10 ASX small caps at 52-week high<\/strong> Code Name Price How far from 52-Week High? 1 mth return 6 mth return 12 mth return EVE Eve Health Group $0.001 0.00% 0.00% 0.00% 0.00% RIM Rimfire Pacific Mining $0.032 0.00% 68.42% 255.56% 300.00% BLY Boart Longyear $2.970 0.00% 5.32% 96.69% 55.50% GNX Genex Power $0.185 0.00% 5.71% 42.31% 19.35% BHD Benjamin Hornigold $0.260 0.00% 1.96% — 18.18% MIL Millennium Services $1.115 0.45% 2.29% 271.67% 189.61% IPX Iperionx $2.230 0.45% 48.67% 106.48% 141.08% WGB Wam Global $2.100 0.47% 6.06% 7.14% 14.44% NAM Namoi Cotton $0.493 0.51% 1.55% 14.53% 9.44% VLS Vita Life Sciences $1.960 0.51% 3.70% 32.43% 28.95% <\/p>\n WordPress Table Plugin<\/a><\/p>\n Eve Health Group (ASX:EVE)<\/strong><\/span><\/p>\n The nutrition and wellness company recently said it was in the advanced stages of finalising a sale of its Jenbrook tea tree assets located in Northern NSW.<\/p>\n The company has already received one conditional offer for the properties, and is in negotiations with the party.<\/p>\n EVE is expecting formal offers from other parties in the coming weeks, and expects to finalise the divestment in the next three months.<\/p>\n Additionally, EVE has agreed to enter short term, unsecured loan facilities with the management of the company for a collective facility of $150k, with managing director Bill Fry agreeing to provide $50k of the facility.<\/p>\n \u00a0<\/p>\n Rimfire Pacific Mining (ASX:RIM)<\/a><\/strong><\/p>\n Rimfire is focused on exploring for critical minerals that are associated with global decarbonisation strategies.<\/p>\n Recently, Rimfire commenced a 4,000 metre aircore drilling program at the Murga Scandium Prospect, which is located on the company\u2019s Fifield Project approximately 70km northwest of Parkes in central NSW.<\/p>\n The aircore program will determine the extent and continuity of scandium mineralisation across the 20km2 Murga Intrusive Complex.<\/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> 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 $0.01 >5% Above SMA >5% Above SMA 0 to 1% Above SMA 1 to 5% Above SMA FL1 First Lithium $0.29 >5% Above SMA 1 to 5% Above SMA < -5% Below SMA 1 to 5% Above SMA BP8 BPH Global $0.00 >5% Above SMA 0 to -1% Below SMA 0 to 1% Above SMA — ARU Arafura Rare Earths $0.14 >5% Above SMA 1 to 5% Above SMA < -5% Below SMA < -5% Below SMA ATP Atlas Pearls $0.21 >5% Above SMA >5% Above SMA >5% Above SMA >5% Above SMA AUZ Australian Mines $0.01 >5% Above SMA >5% Above SMA >5% Above SMA < -5% Below SMA MRD Mount Ridley Mines $0.00 >5% Above SMA 1 to 5% Above SMA 1 to 5% Above SMA < -5% Below SMA GSR Greenstone Resources $0.01 >5% Above SMA 1 to 5% Above SMA 1 to 5% Above SMA < -5% Below SMA BLZ Blaze Minerals $0.01 >5% Above SMA 0 to 1% Above SMA < -5% Below SMA < -5% Below SMA M4M Macro Metals $0.00 >5% Above SMA 1 to 5% Above SMA -1 to -5% Below SMA < -5% Below SMA <\/p>\n WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Atlas Pearls (ASX:ATP)<\/a><\/strong><\/p>\n Atlas is one of the world\u2019s leading producers of the high quality white and silver South Sea pearls.<\/p>\n The company recently announced the resignation of CFO Gemma Cann, who finished with the company effective 7 February.<\/p>\n Temporary arrangements which were put in place to cover a period of extended maternity leave taken by Cann will be continued.<\/p>\n \u00a0<\/p>\n Greenstone Resources (ASX:GSR)<\/a><\/strong><\/p>\n Greenstone, a gold explorer, has been rising since announcing a merger with Horizon Minerals (ASX:HRZ)<\/a><\/strong>.<\/p>\n Under the deal, Horizon will acquire 100% of the shares in Greenstone, and 100% of the listed Greenstone options, subject to the satisfaction of various conditions.<\/p>\n Each Greenstone shareholder will receive 0.2868 Horizon shares for every Greenstone share held.<\/p>\n Horizon shareholders will own 63.1% of the merged entity, while Greenstone shareholders will own the remaining 36.9%.<\/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> Code Name 2 Day RSI 9 Day RSI 14 Day RSI WNR Wingara Ag Oversold Oversold — CMP Compumedics — Oversold — GRV Greenvale Energy Oversold Oversold — UNT Unith Oversold Oversold — ST1 Spirit Technology Oversold Oversold — UBI Universal Biosensors Oversold Oversold — GDA Good Drinks Australia Oversold Oversold — ZMM Zimi — Oversold — LCL LCL Resources — Oversold Oversold SLR Silver Lake Resources — Oversold — <\/p>\n WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Silverlake Resources (ASX:SLR)<\/a><\/strong><\/p>\n SLR has been falling since announcing a merger with gold producer Red 5 (ASX:RED)<\/a><\/strong> that is set to create a mid-tier gold company producing around 445,000 ounces per annum.<\/p>\n Silver Lake already has 11% stake in Red 5, and the combined company will be valued at $1.5 billion.<\/p>\n Under the deal, each Silver Lake shareholder will receive 3.434 Red 5 shares for every Silver Lake share held.<\/p>\n Upon implementation, Red 5 shareholders would hold around 51.7% of the merged entity, while Silver Lake stakeholders will own the remaining 48.3%.<\/p>\n \u00a0<\/p>\n Unith (ASX:UNT)<\/a><\/strong><\/p>\n The AI-focused media company recently reported a valuation increase of its investment in AudioStack (previously Aflorithmic Labs) to $3.9 million from $2.0 million at 30 June 2023.<\/p>\n AudioStack completed a \u00a32.5 million (approximately $4.1 million) pre-Series A funding round led by Quadri Ventures.<\/p>\n The funding round was completed at a pre-money valuation of US$27 million (approximately $41 million), providing an uplift in the implied post-money valuation of UNITH\u2019s 9.7% investment in AudioStack.<\/p>\n \u00a0<\/p>\n <\/span><\/p>\n The post Hot Money Monday: ASX is best place in the world to profit from momentum strategy, says this fundie<\/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