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Hi
Scale trading is a good way to make big money in the commodity markets
Here are the tricks to scale trading

#1 - Only scale trade as prices are going down - not as prices are rising
#2 - Only scale trade on commodities that are close to all time low prices
#3 - Make sure you have enough money in your account to cover lower prices

CORN - A BIG OPPORTUNITY

Corn would be a good market to scale trade right now
Corn is right around 2.00 a bushel right now
The extreme lowest price in the last 20 years has been 1.50 a bushel
1.80 to 1.90 a bushel has stopped most of the declines
So 1.50 to 1.80 is probably the lowest Corn will move on the downside
Of course there are no gurantees - but that is logical

MID AM CONTRACTS
There are Mid Am contracts on Corn
For 1/5 the risk of the bigger size contracts
Mid am contracts work perfect for scale trading
The fact that the contracts are lower risk
Makes it easier to hold them if they go against you

So if you started you Corn scale trading campaign at 2.00 a bushel
And bought every 5 cents down 1.95, 1.90, 1.85, 1.80
By the time Corn got to 1.80 you would have 5 contracts
Your average price per contract would be around 1.90 a bushel

If Corn rallyed to 2.30
You would have a 400.00 profit on 5 Mid Am contracts
That is a scenario that could easily happen and is not some wild forecast

And the risk on the trade
Would not have been more than most traders could handle

Lets say you wanted to play it safer
And only average down every 10 cents
Nothing wrong with that

So you start at 2.00 a bushel, then buy at 1.90, 1.80
Then you only have 3 contracts when Corn hits 1.80 at an average of 1.90
Again not a extreme amount of risk trading Mid Am contracts

Of course nothing says when you buy your first contract
That the market could just take off to the upside
Nothing wrong with that either

Introduction to Scale Trading

Scale trading (also known as "interval trading") uses common price oscillations in a pre-defined range or "scale" to formulate trades. This approach to trading maps out when to buy and when to sell certain commodities trading in the lower end of their historical trading range, preferably at or below the cost of production or close to previous major turning points. Since financial assets such as currencies, bonds and stock indices do not have a "cost of production" and can be subject to devaluation (or crashes); it is highly advisable to avoid scale trading paper assets. In other words, with scale trading, we are interested in trading "tangible" commodities.

For example, it becomes more difficult for prices to drop as they approach zero. Ask yourself this, "is it easier for sugar prices to move from 12 cents to 6 cents, or 6 cents to zero?" Each move represents 6 cents, however, common sense says that we will never see sugar being given away for free! Before prices hit zero, sugar producers will be forced to close down, and as supplies shrink, prices will tend to rise in order to ration demand. The opposite is true when prices hit the upper end of historical price ranges. More producers enter the market to take advantage of fat profit margins until supplies sufficiently meet demand and prices recede again. As a result, commodity prices are always seeking price equilibrium within a relative range based upon the forces of supply and demand.

It is important to realize that scale trading does not utilize "stop" orders. Instead of exiting the market as prices drop, the scale trader systematically continues trading according to plan. As with any trading plan, there are hazards to scale trading: limit moves, contract rollovers, non-oscillating markets, or under-funded accounts can be roadblocks to a successful scale.

Scale Trading - A Systematic Approach

1. Find a market that you wish to begin scale trading by comparing its current price to its historical price range over the last ten to twenty years. Select a buying scale that allows you to buy futures contracts at price intervals all the way down to your lowest anticipated price and still have plenty of money left in reserve.

2. Select a selling scale to liquidate accumulated contracts (refer to the example below.)

3. Once you have decided upon a scale and are confident that you have the necessary funds to maintain your scale then you can start

4. Now do nothing. Watch the price move up and down your scale. As prices fall, you would accumulate contracts when your buy orders are filled. As prices rally, you would sell off the contracts that you have accumulated. As each contract is sold, you would reinstate your buy orders according to your scale.

Hypothetical Example

The Mechanics of a Scale Trade

On day 1 you decide (after reviewing your historical charts and consulting with your broker) to start a 30-point scale trade for sugar starting at 880. This means that you will buy 1 contract every 30 points below 880, i.e. 850, 820, 790 etc. You also decide to place orders to sell a contract 30 points above each one you bought. On day 17 you buy your first contract at 880 and place a profit taking order at 910 and a second buy at 850. From this point if the market goes up, you take a profit. If the market goes down, you buy additional contracts according to your scale. In our example trades would occur in the following sequence:

1: No more contracts left in inventory, but you reinstate your buy order at 880 to continue the scale. 2: No more contracts left in inventory.

         

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Disclaimer - I am not a commodity trading advisor. The information on this site is for trading education only. There are no trading recommendations for any one individual made on this site and this information is paper trades for trading education. All trades are extemely risky and only risk capital should be used when trading.

U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

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