The undisciplined trader. The undisciplined trader is likely to..........

Options aren't risky People are risky.     Every time someone says............... 

"Sitting on Your Hands" Trading Strategy.      Often times, the best trade.......              

Like all things in life, success comes with hard work. Trading warrants is no different to any other endeavour and should be approached with this mindset. Don’t let anyone convince you that this is an easy way to get rich quickly. Persons contemplating trading of warrants should first consider whether they have the following?

A sound knowledge of financial markets

This is probably stating the obvious. There are however traders who believe that trading is just a numbers game. Don’t be fooled into a get-rich-quickly mentality. Without a sound knowledge of financial markets, the stock exchange, share investment strategies, etc., you are almost certainly going to lose money in the markets. Trading warrants should be a natural progression from being a successful share investor with an appetite for more risk.

A sound knowledge of the underlying shares

Warrants derive their value from some underlying share or index. Select only a small number of shares that you are familiar with, conduct a detailed fundamental analysis and study these share and their share price movements in detail. Chart the underlying stock to determine the buy / sell signals and only then turn to the trade-able warrants based on warrant variables i.e. effective gearing, strike price, expiry date, etc.

Knowledge of warrants

Warrants are far more complex than most other financial instruments and a thorough study should be undertaken of warrants, warrant specifications, basic warrant trading strategies and especially the risks associated with the trading of warrants. Training seminars are offered by several warrant issuer financial institutions and online share trading brokers. Standard Bank is one such company and both a warrant brochure and an online warrant tutorial are available from their website www.warrants.co.za

Information

Remain fully informed on a daily basis of developments, locally and internationally, of factors that may influence financial markets and the price of the underlying shares. My own experience is that being fully informed is as important, if not more, than the other success requirements. A good trader will never only rely on technical analysis of the underlying, but will use that information as one more input to the trading decision.

Good understanding of technical analysis.

Unlike conventional long term investing, trading warrants with success is highly dependent on timing of the buy order. A good warrant trader will therefore most definitely be doing technical analysis of the underlying stocks as part of his or her research. A thorough understanding of and application of technical analysis is a definite requirement for success. Introductory courses on technical analysis is offered by most online share trading brokers and should be followed up by more in-depth study.

www.warranttrader.co.za is only concerned with speculation in warrants.

                                                                                                                             Henning Botes, June 2008