You Can't Lose Trading Commodities :: Book

Wiest's trustee on trading commodities centers around a money management technique known as Scale trading.

Scale trading technique involves accumulating a commodity as its price declines and selling as prices rebound. You will be holding a long position with no stops when the seasonal cycle bottoms.

Stocks can go to zero, but commodities cannot. Low prices reduce supply as costs make it unprofitable to produce a commodity. The lower prices causes users to substitute this commodity for others increasing demand and raising prices.

Scale trading involves placing your orders ahead of time to buy at increments down and selling on resting orders at prices slightly above costs.

Because you take your profits quick and increase your losing positions, there may be long periods of time when you are sitting with losses and short periods when you have profits.

Wiest's position sizing technique is how he pulls consistent profits out of scale trading.

Letting your losses run and cutting your profits short uses a relatively large amount of capital to produce modest consistent gains.

The number of contracts traded in a Scale Trading system, fluctuates in accordance with each market's volatility.

After catching the absolute bottom which Wiest often does he always gets out before the market makes its real move.

A simple trailing stop instead of scaling resting orders would catch the rest of the seasonal move.

Like many successful trading techniques, scale trading is intended only to supplement your ordinary income, not to replace it.

---o0o---

15 years before my copy of Wiest's book was written, Jim Sibbett taught us to Scale Trade Bear Spreads in bull markets. We would put our resting orders in resistance using volatility to determine our position size. Whenever there was a reaction to the major trend our resting orders just above support would cover our spreads at a profit. It worked every time but once. Almost 100% winners.

Wiest's system is based pretty much on how he got into this business. Wiest was modifying a breakeven gambling system to trading commodities overcoming his instructional programming as a broker. Wiest can sit with paper losses for long periods of time knowing that commodity prices will come back because of the effects of supply and demand.

Wiest explains his system of scale trading against a massive overview of commodity trading. There is a lot of useful material here for the new or experienced trader.

Wiest has a very good chapter about selecting a commodities broker. If you are choosing a broker this chapter alone could be worth the price of the book.

My 1994 copy was written pre-internet. At that time Wiest depended on brokers for Research. This was an unwise thing to do. Successful traders no longer depend on brokers for Research.

Wiest's physical book itself is excellent. Stitched pages, better than most. He had to write his own bible to educate his clients. Nicely done. Wiest's Gold lettered cover feels like leather. First class, all it is missing is a ribbon.

---o0o---

Spreads!

Wiest does not discuss a technique in which you use spreads on the way down.

First off, Scale trading is not going to work if you start at the seasonal bottom. You need lower prices after you start the campaign to build up some inventory.

Scaling in longs on the way down by its nature accumulates losses.

By using spreads to hedge your long positions on the way down, you can reduce your drawdowns and increase your profits.

Instead of leaving resting orders to liquidate your long positions when your spreads are filled. You must keep track of and place your resting sell orders at the same time that you take profits on the short side of your spreads.

Your remaining long positions offer you no more risk than you would have had if you had not used spreads.

Wiest's trustee on trading commodities centers around a money management technique known as Scale trading.

Scale trading technique involves accumulating a commodity as its price declines and selling as prices rebound. You will be holding a long position with no stops when the seasonal cycle bottoms.

Stocks can go to zero, but commodities cannot. Low prices reduce supply as costs make it unprofitable to produce a commodity. The lower prices causes users to substitute this commodity for others increasing demand and raising prices.

Scale trading involves placing your orders ahead of time to buy at increments down and selling on resting orders at prices slightly above costs.

Because you take your profits quick and increase your losing positions, there may be long periods of time when you are sitting with losses and short periods when you have profits.

Wiest's position sizing technique is how he pulls consistent profits out of scale trading.

Letting your losses run and cutting your profits short uses a relatively large amount of capital to produce modest consistent gains.

The number of contracts traded in a Scale Trading system, fluctuates in accordance with each market's volatility.

After catching the absolute bottom which Wiest often does he always gets out before the market makes its real move.

A simple trailing stop instead of scaling resting orders would catch the rest of the seasonal move.

Like many successful trading techniques, scale trading is intended only to supplement your ordinary income, not to replace it.

---o0o---

15 years before my copy of Wiest's book was written, Jim Sibbett taught us to Scale Trade Bear Spreads in bull markets. We would put our resting orders in resistance using volatility to determine our position size. Whenever there was a reaction to the major trend our resting orders just above support would cover our spreads at a profit. It worked every time but once. Almost 100% winners.

Wiest's system is based pretty much on how he got into this business. Wiest was modifying a breakeven gambling system to trading commodities overcoming his instructional programming as a broker. Wiest can sit with paper losses for long periods of time knowing that commodity prices will come back because of the effects of supply and demand.

Wiest explains his system of scale trading against a massive overview of commodity trading. There is a lot of useful material here for the new or experienced trader.

Wiest has a very good chapter about selecting a commodities broker. If you are choosing a broker this chapter alone could be worth the price of the book.

My 1994 copy was written pre-internet. At that time Wiest depended on brokers for Research. This was an unwise thing to do. Successful traders no longer depend on brokers for Research.

Wiest's physical book itself is excellent. Stitched pages, better than most. He had to write his own bible to educate his clients. Nicely done. Wiest's Gold lettered cover feels like leather. First class, all it is missing is a ribbon.

---o0o---

Spreads!

Wiest does not discuss a technique in which you put on spreads on the way down.

First off, Scale trading is not going to work if you start at the seasonal bottom. You need lower prices after you start the campaign to build up some inventory.

Scaling in longs on the way down by its nature accumulates losses.

By using spreads to hedge your long positions on the way down, you can reduce your drawdowns and increase your profits.

Instead of leaving resting orders to liquidate your long positions when your spreads are filled. You must keep track of and place your resting sell orders at the same time that you take profits on the short side of your spreads.

Your remaining long positions offer you no more risk than you would have had if you had not used spreads.

Wiest is correct when he says Stochastics is used to measure price momentum. It does it great. Stochastics has proven predictive ability.

Wiest is incorrect about how Stochastics is used. By themselves "low percentage numbers," do not "foretell a rally," as Wiest Suggests. In strong trending situations Stochastics can "hang around zero," signifying weakness for a very long time. Wiest is interpreting a Stochastic pop as foretelling a change in trend. When it really implies a continuation in the current trend.

Stochastics percentage readings are used together with reading a chart to guestimate its strength relative to previous moves.

The most important Stochastic signal is divergence between Stochastics (%D) and the commodities price. It is when Divergence occurs in an extreme area, and a cyclical bottom is due, that causes you to sell or buy against the major trend.

One way Stochastics might be used with scale trading. If Wiest modified his system to temporarily use spreads (Bull or Bear) instead of being naked long on the way down. A proper Stochastic divergence buy signal might be a trigger to place the proper scaling out sell orders for the shorts and the remaining net long positions.

Wiest's arbitrary placement of Stochastic stops in "You can't lose trading commodities," is a personal problem of his that is not inherent or even suggested in the correct use of Stochastics. I suggest reading Murphy or Lane for the correct use of Stochastics. Murphy studied with George Lane and has a good grasp of explaining how Stochastics works in print.

The main concern I have with Wiest is if he can shamelessly mangle something I do know about (Stochastics), how can I fully trust is opinion on things that I know "I do not know?"

see, George C. Lane, "Lane Stochastics," in Technical Analysis of Stocks and Commodities, May/June, 1984; see also, Murphy, John J., Technical Analysis of the Futures Markets, A Comprehensive Guide to Trading Methods and Applications, New York: New York Institute of Finance, A Prentice-Hall Company, 1986, p. 304-309.

chris

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