1. Scale Trading & Commodities
Using Options and Futures
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss.

2. RCM Alternatives Brokerage Services Trading Education
Las Vegas Nevada
General Contact Information
Toll Free
RCM Alternatives & Commodity Trading School are both registered “DBA’s” of Reliance Capital Markets II LLC
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

3. There is a substantial risk of loss in trading futures and options
There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. Trading futures, options involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. Selling Options involves unlimited risk of loss and subjects the investor to the possibility of margin calls.
Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

4. All elements of this webinar are the property of Commodity Trading School and may not be reproduced or rebroadcast without written permission.
Any trade strategies created in this webinar are designed for illustrative purposes unless specified otherwise. Responsible parties should consider all risks and potential losses before undertaking futures trading.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

5. Paul Brittain-Creator of Commodity Trading School.
30 year industry veteran.
Branch Manager RCM Alternatives
Regular Contributor to Various Industry Publications.
Profiled in Trader Monthly (June 2005).
Author of the book Commodity Options
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

6. Part One What is Scale Trading?
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

7. What is Scale Trading?
Scale Trading is a disciplined and mechanical approach to commodity trading. Just as any trading strategy, the premise is to buy low and sell high.

8. On a Standard Musical Scale where each note is incremently higher than the last

9. In Scale Trading each entry point is incrementally lower than the last

10. Dollar Cost Averaging
The basis of a “Scale Trading” strategy is dollar cost averaging a commodity as the price falls, which goes against most traders beliefs, how ever this investment rule doesn’t always apply to commodity trading due to the
“Nature of the Beast” meaning that commodities have true cost of production and thus a point where producers stop producing because to do so wouldn’t make sense economically.

11. GOODS not BADS
Scale traders are attempting to profit from the fact that commodities have intrinsic value and cannot drop below production costs for an extended period of time…after all they are “goods” not “bads” and will never be worthless…they can’t go to zero
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

12. When the price of a commodity falls below production costs, growers usually cut back production or even switch to another crop. The resulting decrease in supply will historically push prices higher. They say every picture tell a story, to an analyst so does a chart. The low price levels show “about” where the cost of production is thought to be.

13. The first step in scale trading is to determine if a market fits the desirable requirements (trading near historic lows). We look at longer term charts to identify a markets long term trading range in an attempt to get a better idea of what is considered to be a low price as well as a high price, over the last years. This information would be essential in determining when & where you could consider using a scale trading strategy.

14. The commodity markets are price sensitive, and prices are driven by supply an demand (whether real or just perceived) For example a low supply situation is usually represented by higher prices. Once this occurs, producers will be attracted to the higher prices and will, once again, begin producing more of the commodity. This starts the process all over again. So when prices are low farmers tend to plant less of the crop which eventually leads to a shift in lower supply which lead to higher prices.

15. Especially when prices are trading near the upper end of historical valuation. High prices entice more producers, the eventual increase in supply will usually force prices lower.

16. However, a reverse scale trade or a selling scale is not necessarily recommended.

17. Commodities are Unique
Commodities are unique in that they cannot go to zero. Thus,while scale trading could be applied to other investments such as stocks, this strategy works best in the futures market.

18. Scale trading is best applied to “mother nature” commodities like grains, energy and fiber. Preferably those that are grown for human consumption. Historically these types of commodities ensure that even the worst case scenario can eventually lead to a price recovery.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

19. Financial Assets such as currencies, bonds and stock indices do not have a “cost of production” making them vulnerable to severe devaluation and should be avoided by scale traders.

20. Problems with Scale Trading
Scale Trading involves buying in a weak market in hope that prices will reverse. However, it could be a considerable period of time before prices do in fact turn around forcing scale traders to “sit” on huge losses.

21. Looking for a Bottom
Scale Traders are attempting to take advantage of a markets perceived “low” price based upon historical pricing. We have all heard that picking tops and bottoms are nearly impossible, and it is true but NOT impossible using the right strategy
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

22. Even if many traders and analysts agree that prices are unusually low, a market may sit at the lower end of its historical price range for a long period of time. Many long positions will essentially “give up” and may even force prices lower.

23. In other words, scale trading requires excessive amounts of patience and financial backing.

24. Scale Trading with Futures

25. Steps to Scale Trading Find a under valued commodity
Determine the “scale”
Calculate the necessary capital
Place a series of buy limit orders

26. FIFO vs. LIFO
The standard accounting procedure practiced by most clearing firms is called “FIFO” or First In; First Out- meaning that when offsetting existing positions, they take off the first position established by date, this isn’t bad but can get confusing when scale trading.

27. Using LIFO
So in order to keep better track of your positions, you will need to instruct your clearing firm to switch your accounting to LIFO which means that the Last In will be the First Out…LIFO. In the event your broker tells you that this cannot be done, fire him and call me…

28. Find a “Cheap” Commodity
The first step to scale trading is identifying an ideal market. A commodity trading near the lower 30% of its trading range is an attractive candidate. For example Soybeans…
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

29. The first step in scale trading is to determine if a market fits the desirable criteria (trading near historic lows). We then look at longer term charts to identify a markets overall trading range in an attempt to get a better idea of what is considered what is a low price as well as a high price over the last years. This information would be essential when determining where you could consider using a scale trading strategy. In the example above the current price isn’t trading at the desired price (identified by the yellow lines) so a trader might want to not attempt to scale trade this market

30. Determine the “Scale”
Each purchase should be executed at a predetermined and equidistant level. For example, if a trader was looking to buy corn they might decide to purchase an additional contract at every 5 or 10 cent interval.

31. Calculate the Necessary Capital
Before entering a scale trade, it is imperative that a trader determines the amount of capital needed in order to ride the market to what is deemed to be “the worst case scenario”.

32. The “worst case scenario” is normally considered to be the lowest end of the trading envelope plus another10%. However, there are no guarantees. For example Corn…

33. Using a weekly chart to give a trader long term a better perspective of where the market is currently trading in regards to it’s longer term high’s and more importantly it’s past lows. Traders would be using the long term lows as a possible information source of cost of production levels as well as past extreme lows. This is used to give a trader a better idea of possible risk to determine the depth and possible increments of the scale, we are implementing the markets current lowest price on the chart to determine this, which only give us an idea, nothing more. The arrow is pointing out the lowest price on the chart

34. Place a Series of Orders
Once the market and the scale are determined. In order to execute the strategy, GTC limit orders should be placed on an incremental scale all the way down to the predetermined “worse case scenario” level.

35. As each buy order is filled, enter a limit sell order to close out the position at a pre-determined profit level (usually mirroring the buy scale or better)
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

36. Just as there is no crying in commodities, there are no stop orders in scale trading. The scale trade should be kept in tact until the market bottoms and rallies up to the point at which the first contract executed is sold. Let’s look at Orange Juice & Corn for example…
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

37. Play to
After identifying a market you feel is suitable for this trading method and deciding on the depth of your scale, this is an example of how it might have worked or failed in We will start by deciding on our trading budget (margin & risk capital). Based upon that we will design the scale, we will then forward the chart day by day just like it would occur in real life.

38. Further clarification of slides 37& 38
We rely on attendee participation to
#1 decide on the amount of funding
#2 This will help dictate the depth of the entry levels of the scale as well as the number of positions at those levels
We believe that audience participation greatly enhances the educational experience
The outcome greatly depends on the decisions made by the group

39. Play to
After identifying a market you feel is suitable for this trading method and deciding on the depth of your scale, this is an example of how it might have worked or failed in We will start by deciding on our trading budget (margin & risk capital). Based upon that we will design the scale, we will then forward the chart day by day just like it would occur in real life.

40. Scale Trading with Options

41. Scale Trading with Options
Traders may opt to scale trade using options strategies as opposed to outright futures contracts. The option version of scale trading can be done with considerably less capital.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

42. The versatile nature of options allow traders to scale trade creatively. Depending on the market in question and the current trading climate, it may be optimal to buy out of the money call options, or construct ratio spreads.

43. The steps to scale trading with options are similar to that of futures.

44. Steps to Scale Trading with Options
Find a commodity trading at an extreme price level
Execute a predetermined option strategy at predetermined intervals
Determine exit plan

45. Find a “Extreme” Commodity
As mentioned before, a market trading near 30% of the low or high is considered to be attractive.

46. Execute a Predetermined Option Strategy at Predetermined intervals
Scale trading with options typically involves wider intervals of entry relative to futures. For example, a corn trader may chose to establish a position every 10 to 15 cents of adverse market movement.

47. Less aggressive traders may chose to base entry of a position on time as opposed to market prices. For example, a trader may want to execute a trade every 30 days in order to roll the position over to the next option month.

48. Determine a Plan of Exit
Unlike scale trading with futures contracts, using options leaves the exit strategy hugely ambiguous.

49. Exit strategies should vary based on personal preferences to risk, reward, and time horizon. When using a option spreads it is often advantageous to “leg out”. Note: Spread trades are charged commission and fees per contract per leg
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

50. Scale Trading with Synthetic Spreads

51. Synthetic spreads are an ideal strategy for scale trading in that they can be constructed in a way that involves little out of pocket expense and pose little risk should the market continue to fall.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin callsSpread trades are charged commission and fees per contract per leg

52. If a market is trading in the lower 30% of its trading envelope, a trader could go long a futures contract and buy an at the money put.
Remember that multi-leg spreads are charged commission and fees per leg
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Selling options involves unlimited risk of loss and subjects the investor to margin calls

53. The result is an affordable trade which poses little risk on the downside, but theoretically unlimited risk on the upside.
Remember that multi-leg spreads are charged commission and fees per leg

54. If the market continues to weaken, the trade should be adjusted to lower strike prices.

55. There is a substantial risk of loss in trading futures and options
There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. Trading futures, options involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. Selling Options involves unlimited risk of loss and subjects the investor to the possibility of margin calls.
Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
contains access to FREE trading classes and resources as well as details on how to open a futures account

56. RCM Alternatives Brokerage Services Trading Education
Las Vegas Nevada General Contact Information Toll Free # Paul Brittain
RCM Alternatives & Commodity Trading School are both registered “DBA’s” of Reliance Capital Markets II LLC
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

57. Thank You for attending this presentation!
Remember…A Educated Trader has a better chance to be a Successful Trader!
To our existing clients, our thanks. To everyone else, our anticipation to have you join us as a RCM Alternatives client today.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.