Momentum trading can supercharge a portfolio, but first the investor has to identify stocks in top gear. Here are three main signals to look out for.
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 by other traders.
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So to be a successful momentum trader, one needs to be able to identify the best stocks quickly and accurately.
There are several ways to quantify momentum, and here we look at three main signals used by the market:
- 52-week high
- Simple moving average
- Relative strength index
52-week high
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.
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Simple moving average
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.
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FIRST LITHIUM (ASX:FL1)
First Lithium announced that its highly anticipated diamond drilling would commence soon at its priority 1 lithium prospect, Blakala, on the Gouna Permit in Mali.
The drilling program has been designed to delineate the extent of known spodumene bearing pegmatites, with substantive surface expressions and will consist of 6000m of diamond drilling to depths of up to 300m.
Two diamond drilling rigs will be commissioned on site, for the imminent launch of an aggressive diamond core program.
Targeting extension drilling of significant surface expressions, with drilling to depths of up to 300m, will test downdip extension.
Assays from first round of drilling are expected in 6-8 weeks.
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ADACEL TECH (ASX:ADA)
Air traffic management solutions company ADA announced a new contract award from the Federal Aviation Administration (FAA) following a competitive bid process.
Valued at $US59 million over five years, this contract will encompass a comprehensive range of services connected with the existing installed network of tower simulation systems (TSS).
More than 21 per cent of the world’s airspace is managed with Adacel’s Aurora ATM software. MaxSim Tower Simulator and Training systems lead the industry with the highest number of installations worldwide.
BTC HEALTH (ASX:BTC)
BTC announced that its wholly-owned investee company, BioImpact, had entered into an agreement granting the company exclusive rights to sell and distribute Rhythm Evolution infusion pumps in Australia and New Zealand.
The company says Rhythm is a high-quality range of electronic, portable infusion pumps, administration sets and related accessories, for use in both hospital and homecare applications.
The pumps are Class11b reusable medical devices for the continuous, and/or bolus administration of a wide range of therapeutic medicines, including post-operative pain management, obstetrics, antibiotic therapy, oncology and immunoglobulin infusions.
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 oversold.
An RSI above 80 meanwhile is strongly overbought, and an RSI below 20 is strongly oversold.
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FITZROY RIVER (ASX:FZR)
Fitzroy holds several hard rock royalties in Australia and New Zealand.
The company says the ongoing Ukraine conflict continues to create instability in global oil and gas prices, and has the potential to impact the company’s royalty receipts.
In addition, Fitzroy says royalty receipts may be impacted by any interruption to or suspension of production from ExxonMobil & Woodside in the Gippsland Basin, and any prolonged interruption in production by Buru Energy (ASX:BRU).
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SKY METALS (ASX:SKY)
Assay results for 15 of the 25 holes competed for a total of 4759m at the Tallebung Tin Project were received last week.
Results include:
- TBRC059: 19m @ 0.27 per cent tin from 17m, including; 5m @ 0.83 per cent…
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