Momentum investing involves taking advantage of, and making profits from, upward trends in a stock. The strategy makes a calculated bet that the stock market\u2019s recent winners will remain winners.<\/p>\n
The most celebrated momentum-following strategy is the The Turtle Trading System,<\/strong> which is a chart strategy created by Richard Dennis and William Eckhardt<\/em> during the 1980s.<\/p>\n The program recruited and trained a group of traders to trade stocks based on the System, and achieved remarkable success. Some of the traders recruited reportedly made millions of dollars in profits.<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n Principle 1: Following momentum<\/strong><\/p>\n The Turtle System uses a variety of technical indicators, such as the moving average indicator (explained more below), to identify trends and decide when to enter and exit trades.<\/p>\n One strategy is to buy when the stocks\u2019s weekly close is above the 50-day moving average.<\/p>\n Alternatively, the strategy also allow monthly or daily closes to be used vs the 50-day moving average to decide if you should buy the stock.<\/p>\n \u00a0<\/p>\n Principle 2: Position Sizing<\/strong><\/p>\n The Turtle Method employs a position sizing method known as the \u201c1% risk rule.\u201d<\/p>\n This rule states that traders should risk no more than 1% of their account balance on any one trade.<\/p>\n For example, if a trader has $100,000 in his trading account, he\/she should not risk more than $1,000 on any single trade.<\/p>\n \u00a0<\/p>\n Principle 3: Entry and Exit<\/strong><\/p>\n The System uses a series of rules to decide when a trader should enter into\/exit from a trade.<\/p>\n We\u2019ve already discussed one entry rule above i.e. buying when the stock price closes above a moving average.<\/p>\n Another rule is to buy a stock when the price breaks above the 20-day high, and exit when the price falls below the 10-day low.<\/p>\n Or, buy when the stock price is above the 20-day high, and sell it\u00a0falls below the 10-day low.<\/p>\n \u00a0<\/p>\n Principle 4: Risk Management<\/strong><\/p>\n Finally, the Turtle System puts emphasis on risk management in order to control losses and preserve capital.<\/p>\n The system encourages stop-loss orders to limit a trade\u2019s downside risk.<\/p>\n In other words, when a trade moves against the trader, the trade will automatically be closed out if a specific price is reached, limiting potentially bigger losses.<\/p>\n \u00a0<\/p>\n To apply the Turtle Trading System, there are several indicators that can be used to signal momentum of any given stock, and here we look at three main ones:<\/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 \u00a0<\/p>\n 10 ASX small caps at 52-week high<\/strong><\/p>\n (data from Commsec)<\/em>\n<\/p>\n Code Name Price How far from 52-Week High? 1 mth return 6 mth return 12 mth return TD1 Tali Digital $0.002 0.00% 33.33% 100.00% 0.00% PCL Pancontinental Energy $0.03 0.00% 19.05% 78.57% 150.00% SKS SKS Technologies $0.60 0.00% 57.89% 224.32% 233.33% TBR Tribune Resources $4.54 0.00% 33.92% 50.83% 12.66% UOS United Overseas $0.61 0.00% 10.00% 17.48% 8.04% IPT Impact Minerals $0.02 0.00% 33.33% 100.00% 81.82% EXT Excite Technology $0.01 0.00% 50.00% 100.00% 71.43% GDG Generation Development $2.15 0.00% 9.14% 36.94% 82.20% TOU TLOU Energy $0.04 0.00% 18.92% 46.67% 2.33% GNX Genex Power $0.27 0.00% 10.20% 80.00% 68.75% <\/p>\n WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Impact Minerals (ASX:IPT)<\/a><\/strong><\/p>\n Drilling is well underway at the Hyperion Rare Earth Element (REE) Prospect \u2013 part of the Arkun Project in WA \u2013 to test a large Rare Earth Element soil geochemistry anomaly.<\/p>\n The soil anomaly covers at least a 3km2 area at greater than 1,000ppm Total Rare Earth Oxide (TREO+Y) with peak values up to 5,880ppm (0.59%) TREO+Y and Nd+Pr of up to 21%.<\/p>\n The soil anomaly is hosted in weathered granite and is prospective for a large clay-hosted REE deposit.<\/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 AAR Astral Resources NL $0.07 >5% Above SMA >5% Above SMA >5% Above SMA 0 to 1% Above SMA BIS Bisalloy Steel Group $3.24 >5% Above SMA >5% Above SMA >5% Above SMA >5% Above SMA AMO Ambertech $0.33 >5% Above SMA >5% Above SMA >5% Above SMA >5% Above SMA ANG Austin Engineering $0.51 >5% Above SMA 1 to 5% Above SMA >5% Above SMA >5% Above SMA ASE Astute Metals NL $0.03 >5% Above SMA >5% Above SMA 0 to 1% Above SMA < -5% Below SMA CYM Cyprium Metals $0.03 >5% Above SMA >5% Above SMA >5% Above SMA < -5% Below SMA FML Focus Minerals $0.20 >5% Above SMA 1 to 5% Above SMA >5% Above SMA >5% Above SMA TD1 TALI Digital $0.00 >5% Above SMA >5% Above SMA >5% Above SMA 1 to 5% Above SMA MRD Mount Ridley Mines $0.00 >5% Above SMA >5% Above SMA >5% Above SMA 0 to 1% Above SMA GSR Greenstone Resources $0.01 >5% Above SMA >5% Above SMA >5% Above SMA 0 to 1% Above SMA <\/p>\n WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Astral Resources (ASX:AAR)<\/a><\/strong><\/p>\n Recent RC drilling at Kamperman has successfully in-filled the Prospect to the south, and extended the known mineralised strike by a further 100m to the north.<\/p>\n Assay results received from the remaining 15 holes of a 19-hole\/2,459m Reverse Circulation (RC) drilling program at the Kamperman Prospect (Feysville Gold Project), with best results including: 13m at 3.95g\/t Au from 35m including 1m at 45.6g\/t Au from 41m.<\/p>\n With 14 of the 19 holes now drilled in this latest campaign, Astral says Kamperman is advancing towards a potentially very valuable source of high-grade satellite ore.<\/p>\n \u00a0<\/p>\n Bisalloy Steel (ASX:BIS)<\/a><\/strong><\/p>\n Bisalloy recently received a purchase order of processed Australian steel by a major US military shipbuilder Newport News Shipbuilding (NNS), a division of HII, the largest military shipbuilder in the US and one of two US companies that designs and builds US nuclear-powered submarines.<\/p>\n Newport News Shipbuilding (NNS) will use the steel for training and testing with this order representing a critical step in strengthening the industrial supply base for the AUKUS program.<\/p>\n Bisalloy is Australia\u2019s only manufacturer of high-strength structural, wear-resistant and armour steel plates using quenched and tempered steel.<\/p>\n \u00a0<\/p>\n Here\u2019s another momentum signal used by the market \u2013 the Relative Strength Index (RSI).<\/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 strongly bought; and an RSI below 30 indicates that it\u2019s strongly sold.<\/p>\n An RSI above 80 meanwhile is extremely bought, and an RSI below 20 is extremely oversold.<\/p>\n 10 ASX small caps with RSI over 70:\u2028<\/strong> Code Name 2 Day RSI 9 Day RSI 14 Day RSI FML Focus Minerals Overbought Overbought — BCM Brazilian Critical Minerals — Overbought — OBM Ora Banda Mining Overbought Overbought Overbought UOS United Overseas Overbought Overbought — STK Strickland Metals Overbought Overbought Overbought SBM St Barbara — Overbought Overbought PNR Pantoro — Overbought Overbought AD1 AD1 Holdings Overbought Overbought — SP3 Spectur Overbought Overbought — AX8 Accelerate Resources — Overbought — <\/p>\n WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n Brazilian Critical Minerals (ASX:BCM)<\/a><\/strong><\/p>\n Puuling in outstanding recoveries of magnetic rare earth oxides (MREO), up to 83%, from phase 2 metallurgical testwork.<\/p>\n Recoveries achieved using standard weak ammonium sulphate leaching solution, pH 4, at ambient temperatures over low leach times of only 30 minutes duration.<\/p>\n Leachability response now confirms majority portion of the defined 82km2 of rare earth mineralisation contains ionic clays.<\/p>\n The remaining 107km2 of the Ema project remains undrilled and untested.<\/p>\n \u00a0<\/p>\n Accelerate Resources (ASX:AX8)<\/a><\/strong><\/p>\n The Prinsep Lithium Project maiden drill program is rapidly advancing with Aboriginal Heritage and Ethnographic surveys confirmed.<\/p>\n Survey to cover full +1.8km strike extent of both the northern and southern mineralised lithium pegmatite trends where assay results up to 2.06% Li2O1 have been reported.<\/p>\n Program of Works are currently under assessment with the Department of Energy, Mines, Industry Regulation and Safety.<\/p>\n Drilling to commence immediately post final approvals.<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n <\/span><\/p>\n The post Hot Money Monday: The Turtle Trading System is the most celebrated momentum strategy; here\u2019s how it works<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"The Turtle Trading System is based on four principles:<\/h2>\n
\nSimple Moving Average<\/strong>
\nRelative Strength Index<\/strong><\/p>\nSIGNAL 1: 52-week highs<\/h2>\n
SIGNAL 2: \u00a0Simple Moving Average<\/h2>\n
\n(data from Commsec)<\/em><\/p>\nSIGNAL 3: Relative Strength Index<\/h2>\n
\n(data from Commsec)<\/em><\/p>\n