Customer Reviews

You Can't Lose Trading Commodities

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Master Wiest shows that with proper position sizing you can consistently make profits even if you let losses run and cut your profits short.

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.

I personally could never attempt this trading approach, but I recommend it for reading because I think it is important for a trader to gain different perspectives. Mr. Weist was successful as a money manager and trader in applying this unconventional but proven "scale trading" methodology. He provides clear examples and many of his own interesting experiences.

If you don't know what this book is about type 'scale trading' into a search engine. For anyone intersted in this approach this is the classic must read book. I found it fascinating and nearly used this as my trading approach. Why didn't I? Because I knew that I couldn't handle the drawdowns (read- losses!)that the system involves. If you have nerves of steel this is a great way to achieve an average of 25 - 50 % a year.

By the way , the 2nd half of the book is just the author ranting about how the NFA done him wrong. An interesting read , but not relevant so you could skip it.

After reading this book, I decided scale trading wasn't for me. To properly scale trade, you need a large amount of capital and the intestinal fortitude to watch your account go through significant drawdowns. But despite my misgivings about the scale trading method itself, this is still one of my favorite books. The author has worked as a broker and as a fund manager, among other things. His opinions and stories about what happens in the markets are classic. His dry wit and "tell it like it is" style of storytelling make it hard to put the book down in certain places. This is a valuable addition to any trader's library. If you can find a copy, it's well worth the time and trouble.

Master Wiest shows that with proper position sizing you can consistently make profits even if you let losses run and cut your profits short.

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.

I can't say enough good things about this book. I have not had a single losing trade since 1996. I got to know the author on a first name basis and he is not pleased with the gal in Florida that took over the business. Be aware of a similar trading system. In my eyes, the scales orchestrated by that firm were (are) not set up properly. You can expect a comfortable 20 - 40% return each year trading Wiests way (Ive had more several times). There was one year when I had a paper loss the first year, broke even the second, and the third and fourth year my account just screamed. (I had 74 coffee contracts at one time...lots of oscillations) The best thing about this is I can continue to be a contractor, real estate investor, farm investor and don't have to watch the market once a scale is set up. There is one drawback to this....I would not trade this way unless you have at least $100,000. Having this much (or more) creates many more opportunities for oscillations which will help with the draw down of the account. I had a student that made $48,000 in six months...not bad but he was extremely lucky. All the commodities we scaled went straight up in short order. Not a good lesson in true scale trading. I had mentioned I haven't had a losing trade since 1997, in 1996 I just got out of silver and the only thing to scale at that time was feeder cattle. I was the only one on the floor at REVCO that made money that year (a fair amount mind you) and the broker kept on cheering me on when I put 10 and 20 lot orders to buy feeder contracts. I just kept buying, he kept cheering me on stating "man, your account is going to be really fat at the end of the year". I kept buying more and more contracts not figuring them properly to my scale. I had 263 of those puppies, (thats not a typo, I had 263 feeder contracts and was reported on the floor of the CME)Well.....it went against me....they liquidated my account....I sold a 50 lot at the all time low. Look at the chart, someone had to be a buyer and someone had to be a seller, I sold 50 contracts at the low,...lucky me.) Thats what happens when you don't scale trade and speculate. I know several grain traders at the CBOT and several S&P and Bond traders at the Merc. They think Im crazy for trading the way I do but I know for a fact,...I have pulled more money out of the market than they have over the past 20 years....plus I don't have gray hair like they do. The system works so well that you will probably become bullet proof and want to change it. And when you do...well you will become like most all traders.

I have used the strategy successfully for 10 years, making 20-25% per year. I decided to use it because it passed the common sense test. I will not suggest it to family or friends because of the stress of paper losses. It takes a certain mind set to stick with it.

Please let me make a separate entry for Wiest's use and abuse of Stochastics.

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.

Mr. Weist's proven "scale trading" method is a very interesting but unconventional trading approach that I personally could never attempt. However, I think it's important to get different perspectives and this is a well written book, with clear examples and many of the author's own personal experiences as a professional money manager.

i am an experienced trader. if you use the method in this book be prepared to lose huge amounts of money. i doubt that the trading record touted by the author is factual. the goal of this book as far as i can tell is not to impart knowledge to the buyer but to sell books for the author. save your money and buy books written by reputable authors

chris