Trading considerations of a derivative warrant that uses a thai stock ADVANC as a reference is studied in this post. The market is ADVA01C1808A. From the name we know that it is issued by Bualuang (01), type of call derivative warrant (C), ending in August 2018 (1808) and first series (A). The chart set up used is a candlestick 240 minute chart with bollinger band(20,2), simple moving average(5), moving average convergence-divergence(13,6,5) and volume.
Reading the chart from left to right, our story starts with sma5 crosses up sma20 ( the middle line of bb202). This suggests an uptrend. The rally continues until sma5 crosses back down sma20. The price turns to a downtrend and stop hunting where buyers who did not take profits during the previous uptrend are forced to sell their shares to the market makers. This stop-hunting drives the price deep down to 1.08 THB where the volume peaks and the macd bottoms. Then the price recovery follows by manipulations of the market makers for three times (point 1, 2, and 3). These manipulations drive the macd indicator to cross up in its negative territory and causes the price to go above sma20 line and sma5 to cross above sma20 which suggest a new uptrend.
At this stage, the market usually needs a price pullback before continues upward. The market retraces to 1.13 THB and reverses to close above sma5 again. The buying point for this trade is at the candle's high of 1.25 THB. The stop-loss price is set to 1.13 THB. If the trade went bad, we would lose 1.25 - 1.13 = 0.12 THB per share and that money amount would not be more than 3% of the account.
Suppose the account value is 140,000 THB. We can afford to lose only 140,000 x 0.03 = 4,200 THB. So the number of shares purchased is 4,200 THB/0.12 THB/share = 35,000 shares. The cash used to buy 35,000 shares of ADVA01C1808A at 1.25 THB is 35,000 x 1.25 = 43,750 THB. This cash for one transaction is 43,750/140,000 = 31.25% of the account value.
There are many ways to take profit from a trade. A conservative exit strategy that works regularly for stocks is a fixed 4% profit (Beehive4). Since derivative warrant markets tend to fluctuate more than common stocks, a fixed 7% profit taking (Beehive7) is chosen in this study. Therefore we take profit at 1.25 x 1.07 = 1.34 THB and then go on for other opportunities.
Investors who want to learn how to read market stories from the charts can consult me (Dr. Nimit Chomnawang) at [ m.me/nimit.chomnawang ].
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